The Role of Money in Monetary Policy at the Lower Bound

Roberto Billi, Ulf Söderström and Carl Walsh

Journal of Money, Credit and Banking, 2023, vol. 55, issue 4, 681-716

Abstract: In light of the current low‐interest‐rate environment, we reconsider the merits of strict money growth targeting (MGT) relative to conventional inflation targeting (IT) and to price level targeting (PLT). We evaluate these policies in terms of social welfare through the lens of a New Keynesian model and accounting for a zero lower bound (ZLB) constraint on the nominal interest rate. Although MGT makes monetary policy vulnerable to money demand shocks, MGT contributes to achieving price level stationarity and significantly reduces the incidence and severity of the ZLB relative to both IT and PLT. Furthermore, MGT lessens the need for fiscal expansions to supplement monetary policy in fighting recessions.

Date: 2023
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https://doi.org/10.1111/jmcb.13024

Related works:
Working Paper: The Role of Money in Monetary Policy at the Lower Bound (2020)
Working Paper: The Role of Money in Monetary Policy at the Lower Bound (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:55:y:2023:i:4:p:681-716

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