The zero lower bound on the interest rate and a Neo-Classical Phillips curve

Ragna Alstadheim ()

No 2010/13, Working Paper from Norges Bank

Abstract: With sticky prices, optimizing agents and money in the utility function, I derive the exact analytical solution for optimal monetary policy given a zero lower bound (ZLB) on the interest rate. The Phillips curve is Neo-Classical, and the ZLB is then not a constraint on optimal policy. Optimal policy is history dependent even without a commitment problem and implements a Friedman rule equilibrium. The role of forward guidance in policy is more limited than under a New-Keynesian Phillips curve. The optimal policy rule intercept term is time varying and depends on the variance of the natural real rate.

Keywords: Zero Lower Bound on Interest Rates; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E31 E52 E61 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2010-07-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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https://www.norges-bank.no/en/news-events/news-pub ... pers/2010/WP-201013/

Related works:
Journal Article: The zero lower bound on the interest rate and a Neoclassical Phillips curve (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:bno:worpap:2010_13

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