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Time Consistency and the Duration of Government Debt: A Signalling Theory of Quantitative Easing

Saroj Bhattarai (), Gauti Eggertsson () and Bulat Gafarov ()

No 21336, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We present a signalling theory of Quantitative Easing (QE) at the zero lower bound on the short term nominal interest rate. QE is effective because it generates a credible signal of low future real interest rates in a time consistent equilibrium. We show these results in two models. One has coordinated monetary and fiscal policy. The other an independent central bank with balance sheet concerns. Numerical experiments show that the signalling effect can be substantial in both models.

JEL-codes: E31 E4 E42 E43 E5 E52 E62 E63 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: ME
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Working Paper: Time Consistency and the Duration of Government Debt: A Signalling Theory of Quantitative Easing (2014) Downloads
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