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Monetary policy regimes and the lower bound on interest rates

Giuseppe Corbisiero
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Giuseppe Corbisiero: Central Bank of Ireland

No 6/EL/18, Economic Letters from Central Bank of Ireland

Abstract: This Letter analyses different monetary policy regimes from the New Keynesian perspective. In the presence of a lower bound on policy rates, adjusting the inflation target with past realisations of inflation strengthens monetary stimuli during recessions. However, amplified short-term fluctuations in inflation and output make such history-dependent regimes unappealing. Therefore, this Letter discusses a hybrid regime that incorporates their advantages without suffering from their drawbacks.

New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2018-05
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