Inflation targets and the liquidity trap

Matt Klaeffling and Víctor López Pérez

No 272, Working Paper Series from European Central Bank

Abstract: The presence of a lower bound of zero on nominal interest rates has important implications for the conduct of optimal monetary policy. Standard rational expectations models can have alternative steady states as well as non-unique laws of motion, i.e. there can be possible sunspot equilibria. Such complications can be ruled out under a number of alternative assumptions. In this paper we analyse the relevance of the zero lower bound for alternative levels of inflation in a standard Neo-Keynesian model, where stability is assured by assuming that fiscal policy turns expansionary at the zero lower bound. JEL Classification: E31, E52, E58, E61

Keywords: inflation targets; interest rate rules; non-linear models; rational expectations; zero bound on nominal interest rates (search for similar items in EconPapers)
Date: 2003-09
Note: 341468
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2003272

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