Strengthening the FOMC’s Framework in View of the Effective Lower Bound and Some Considerations Related to Time-Inconsistent Strategies

Fernando Duarte, Benjamin K. Johannsen, Leonardo Melosi and Taisuke Nakata
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Benjamin K. Johannsen: https://www.federalreserve.gov/econres/benjamin-k-johannsen.htm

No 2020-067, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We analyze the framework for monetary policy in view of the effective lower bound (ELB). We find that the ELB is likely to bind in most future recessions and propose some ways that theoretical models imply that the framework could be strengthened. We also discuss ways that commitment strategies, which are not part of the framework, may improve economic outcomes. These policies can suffer from a time-inconsistency problem, which we analyze.

Keywords: Monetary policy; Effective lower bound; Forward guidance; Balance sheet policies; Commitment policies; Time inconsistency (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 E58 (search for similar items in EconPapers)
Pages: 42
Date: 2020-08-27
New Economics Papers: this item is included in nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2020-67

DOI: 10.17016/FEDS.2020.067

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