Speed Limit Policy and Liquidity Traps

Taisuke Nakata, Sebastian Schmidt and Paul Yoo
Additional contact information
Taisuke Nakata: University of Tokyo
Paul Yoo: UNC Kenan-Flagler

No CARF-F-480, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: The zero lower bound (ZLB) constraint on interest rates makes speed limit policies(SLPs) - policies aimed at stabilizing the output growth - less effective. Away from the ZLB, the history dependence induced by a concern for output growth stabilization improves the inflation-output tradeoff for a discretionary central bank. However, in the aftermath of a deep recession with a binding ZLB, a central bank with an objective for output growth stabilization aims to engineer a more gradual increase in output than under the standard discretionary policy. The anticipation of a more restrained recovery exacerbates the declines in inflation and output when the lower bound is binding.

Pages: 28
Date: 2020-04
New Economics Papers: this item is included in nep-cba and nep-mon
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Related works:
Working Paper: Speed limit policy and liquidity traps (2018)
Working Paper: Speed Limit Policy and Liquidity Traps (2018)
Working Paper: Speed Limit Policy and Liquidity Traps (2018)
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