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Monetary policy alternatives at the zero bound: an empirical assessment

Ben Bernanke, Vincent Reinhart and Brian P. Sack

No 2004-48, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (US)

Abstract: The success over the years in reducing inflation and, consequently, the average level of nominal interest rates has increased the likelihood that the nominal policy interest rate may become constrained by the zero lower bound. When that happens, a central bank can no longer stimulate aggregate demand by further interest-rate reductions and must rely on "non-standard" policy alternatives. To assess the potential effectiveness of such policies, we analyze the behavior of selected asset prices over short periods surrounding central bank statements or other types of financial or economic news and estimate "no-arbitrage" models of the term structure for the United States and Japan. There is some evidence that central bank communications can help to shape public expectations of future policy actions and that asset purchases in large volume by a central bank would be able to affect the price or yield of the targeted asset.

Keywords: Deflation (Finance); Deflation (Finance) - Japan; Monetary policy - United States; Monetary policy - Japan (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-mon
Date: 2004
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