Theoretical Analysis Regarding a Zero Lower Bound on Nominal Interest Rates

Bennett McCallum

No 7677, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper explores several issues concerning a possible zero lower bound (ZLB) including its theoretical rationale; the magnitude of effects of low sustained inflation on real interest rates; the validity of analyzing monetary policy in models with no monetary variables; and the dynamic stabilizing properties of Taylor rules in a ZLB context. The most important argument, however, is that if the short nominal rate is immobilized at zero, there nevertheless exists a route for monetary stabilization policy to be effective--- via the foreign exchange market. Its quantitative importance is examined in a calibrated, optimizing, open-economy model.

JEL-codes: E40 E50 (search for similar items in EconPapers)
Date: 2000-04
New Economics Papers: this item is included in nep-fmk, nep-ifn and nep-mon
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (248)

Published as Journal of Money, Credit and Banking, Vol. 32, no. 4, part 2 (November 2000): 870-904
Published as Bennett T. McCallum, 2000. "Theoretical analysis regarding a zero lower bound on nominal interest rates," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 870-935.

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Journal Article: Theoretical Analysis Regarding a Zero Lower Bound on Nominal Interest Rates (2000)
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