EconPapers    
Economics at your fingertips  
 

Speed Limit Policy and Liquidity Traps

Taisuke Nakata, Sebastian Schmidt () and Paul Yoo

No 2018-050, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

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.

Keywords: Liquidity traps; Markov-perfect equilibrium; Speed limit policy; Zero lower bound (search for similar items in EconPapers)
JEL-codes: E52 E61 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2018-07-19
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
https://www.federalreserve.gov/econres/feds/files/2018050pap.pdf (application/pdf)

Related works:
Working Paper: Speed Limit Policy and Liquidity Traps (2020) Downloads
Working Paper: Speed limit policy and liquidity traps (2018) Downloads
Working Paper: Speed Limit Policy and Liquidity Traps (2018) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2018-50

DOI: 10.17016/FEDS.2018.050

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2021-11-24
Handle: RePEc:fip:fedgfe:2018-50