Price stability and monetary policy effectiveness when nominal interest rates are bounded at zero

Advances in Macroeconomics

Volumn 4, Issue 1, 2004, Pages

  Coenen, Günter ^a   Orphanides, Athanasios ^b   Wieland, Volker ^c  

^a EUROPEAN CENTRAL BANK   (Germany)

^b FEDERAL RESERVE BOARD   (United States)

^c GOETHE UNIVERSITY   (Germany)

Author keywords

Inflation targeting; Liquidity trap; Monetary policy rules; Price stability

Indexed keywords

EID: 14844360443     PISSN: 15346013     EISSN: 15346013     Source Type: Journal    
DOI: 10.2202/1534-6013.1187     Document Type: Article

References (55)

1. Akerlof, George, William Dickens and George Perry (1996), "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, 1, 1-76.
2. Anderson, Gary S. (1987), "A Procedure for Differentiating Perfect-Foresight-Model Reduced-Form Coefficients," Journal of Economic Dynamics and Control, 11, 465-81.
3. Anderson, Gary S. and George R. Moore (1985), "A Linear Algebraic Procedure for Solving Linear Perfect Foresight Models," Economics Letters, 17, 247-52.
4. Blanchard, Olivier and Charles Kahn (1980), "The Solution of Linear Difference Models under Rational Expectations," Econometrica, 48, 1305-11.
5. Boucekkine, Raouf (1995), "An Alternative Methodology for Solving Nonlinear Forward-Looking Models," Journal of Economic Dynamics and Control, 19, 711-734.
6. Clark, Todd (1997), "Cross-Country Evidence on Long-Run Growth and Inflation," Economic Inquiry, 35, 70-81.
7. Clouse, James, Dale Henderson, Athanasios Orphanides, David H. Small and Peter A. Tinsley (2003), "Monetary Policy when the Nominal Short-Term Interest Rate is Zero," Topics in Macroeconomics, 3(1), Article 12, http://www.bepress.com/bejm /topics/vol3/iss1/art12.
8. Coenen, Günter (2004), "Asymptotic Confidence Bands for the Estimated Autocovariance and Autocorrelation Functions of Vector Autoregressive Models," Empirical Economics, forthcoming.
9. Coenen, Günter and Volker Wieland (2003), "The Zero-Interest-Rate Bound and the Role of the Exchange Rate for Monetary Policy in Japan," Journal of Monetary Economics, 50, 1071-1101.
10. Coenen, Günter and Volker Wieland (2004), "A Small Estimated Euro Area Model with Rational Expectations and Nominal Rigidities," European Economic Review, forthcoming.
11. Congressional Budget Office (2002), The Economic and Budget Outlook, United States Government Printing Office.
12. Driffill, John, Grayham Mizon and Alistair Ulph (1990), "Costs of Inflation," in Benjamin M. Friedman and Frank H. Hahn, eds., Handbook of Monetary Economics, North Holland, Amsterdam.
13. Eggertson, Gauti, and Michael Woodford (2003), "The Zero Bound on Interest Rates and Optimal Monetary Policy," Brookings Papers on Economic Activity, 1, 139-233.
14. Estrella, Arturo and Jeffrey C. Fuhrer (2002), "Dynamic Inconsistencies: Counter-factual Implications of a Class of Rational Expectations Models," American Economic Review, 92, 1013-28.
15. Fair, Ray and John B. Taylor (1983), "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models," Econometrica, 51, 1169-85.
16. Feldstein, Martin (1997), "The Costs and Benefits of Going from Low Inflation to Price Stability," in Christina D. Romer and David H. Romer, eds., Reducing Inflation: Motivation and Strategy, University of Chicago Press, Chicago.
17. Fischer, Stanley (1981), "Towards an Understanding of the Costs of Inflation: II," Carnegie-Rochester Conference Series on Public Policy, 15, 5-41.
18. Fischer, Stanley (1994), "Modern Central Banking," in The Future of Central Banking, The Tercentenary Symposium of the Bank of England, Cambridge University Press, Cambridge.
19. Fischer, Stanley (1996), "Why Are Central Banks Pursuing Long-Run Price Stability?," in Achieving Price Stability, Federal Reserve Bank of Kansas City.
20. Fischer, Stanley and Franco Modigliani (1978), "Towards an Understanding of the Real Effects of Inflation," Weltwirtschaftliches Archiv, 114, 810-32.
21. Friedman, Milton (1969), The Optimum Quantity of Money and Other Essays, University of Chicago Press, Chicago.
22. Fuhrer, Jeffrey C. (1994), "Optimal Monetary Policy and the Sacrifice Ratio," in Jeffrey C. Fuhrer, ed., Goals, Guidelines, and Constraints Facing Monetary Policymakers, Federal Reserve Bank of Boston.
23. Fuhrer, Jeffrey C. and Brian F. Madigan (1997), "Monetary Policy when Interest Rates are Bounded at Zero," Review of Economics and Statistics, 79, 573-85.
24. Fuhrer, Jeffrey C. and George R. Moore (1995a), "Inflation Persistence," Quarterly Journal of Economics, 110, 127-59.
25. Fuhrer, Jeffrey C. and George R. Moore (1995b), "Monetary Policy Trade-offs and the Correlation between Nominal Interest Rates and Real Output," American Economic Review, 85, 219-39.
26. Greenspan, Alan (1998), "Problems of Price Measurement," remarks at the Annual Meeting of the American Economic Association and the American Finance Association, Chicago, Illinois, January 3.
27. Hicks, John (1937), "Mr. Keynes and the 'Classics': A Suggested Interpretation," Econometrica, 5, 147-59.
28. Hicks, John (1967), Classical Essays in Monetary Theory, Oxford University Press, London.
29. Hunt, Benjamin and Douglas Laxton (2001), "The Zero Interest Rate Floor and Its Implications for Monetary Policy in Japan," IMF Working Paper, WP/01/186, International Monetary Fund.
30. Judson, Ruth and Athanasios Orphanides (1999), "Inflation, Volatility and Growth," International Finance, 2, 117-38.
31. Juillard, Michel (1994), "DYNARE - A Program for the Resolution of Non-Linear Models with Forward-Looking Variables," Release 1.1, mimeo, CEPREMAP.
32. Keynes, John M. (1923), "Social Consequences of Changes in the Value of Money," in Essays in Persuasion, 1931, MacMillan, London.
33. Laffargue, Jean-Pierre (1990), "Résolution d'un Modèle Macroéconomique avec Anticipations Rationnelles," Annales d'Economie et de Statistique, 17, 97-119.
34. Levin Andrew, Volker Wieland and John C. Williams (1999), "Robustness of Simple Policy Rules under Model Uncertainty," in John B. Taylor, ed., Monetary Policy Rules, NBER and University of Chicago Press, Chicago.
35. Levin Andrew, Volker Wieland and John C. Williams (2003), "The Performance of Forecast-Based Monetary Policy Rules under Model Uncertainty," American Economic Review, 93, 622-45.
36. Orphanides, Athanasios (2001), "Monetary Policy Rules Based on Real-Time Data," American Economic Review, 91, 964-85.
37. Orphanides, Athanasios (2003), "Historical Monetary Policy Analysis and the Taylor Rule," Journal of Monetary Economics, 50, 983-1022.
38. Orphanides, Athanasios (2004), "Monetary Policy in Deflation: The Liquidity Trap in History and Practice," North American Journal of Economics and Finance, forthcoming.
39. Orphanides, Athanasios, David H. Small, David Wilcox and Volker Wieland (1997), "A Quantitative Exploration of the Opportunistic Approach to Disinflation," Finance and Economics Discussion Series, 97-36, Board of Governors of the Federal Reserve System, June.
40. Orphanides, Athanasios and Robert M. Solow (1990), "Money, Inflation, and Growth," in Benjamin M. Friedman and Frank H. Hahn, eds., Handbook of Monetary Economics, North Holland, Amsterdam.
41. Orphanides, Athanasios and Volker Wieland (1998), "Price Stability and Monetary Policy Effectiveness when Nominal Interest Rates are Bounded at Zero," Finance and Economics Discussion Series, 98-35, Board of Governors of the Federal Reserve System, June.
42. Orphanides, Athanasios and Volker Wieland (2000), "Efficient Monetary Policy Design near Price Stability," Journal of the Japanese and International Economies, 14, 221-37.
43. Reifschneider, David and John C. Williams (2000), "Three Lessons for Monetary Policy in a Low Inflation Era," Journal of Money, Credit and Banking, 32, 936-66.
44. Rotemberg, Julio and Michael Woodford (1997), "An Optimization-Based Econometric Framework for the Evolution of Monetary Policy," NBER Macroeconomics Annual, 12, 297-346.
45. Rotemberg, Julio and Michael Woodford (1999), "Interest-Rate Rules in an Estimated Sticky-Price Model," in John B. Taylor, ed., Monetary Policy Rules, NBER and University of Chicago Press, Chicago.
46. Sarel, Michael (1996), "Nonlinear Effects of Inflation on Economic Growth," IMF Staff Papers, 43, 199-215.
47. Summers, Lawrence (1991), "How Should Long-Term Monetary Policy Be Determined," Journal of Money, Credit and Banking, 23, 625-31.
48. Svensson, Lars E.O. (2001), "The Zero Bound in an Open-Economy: A Foolproof Way of Escaping from a Liquidity Trap," Monetary and Economic Studies, 19, 277-312.
49. Taylor, John B. (1980), "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, 88, 1-23.
50. Taylor, John B. (1993a), "Discretion Versus Policy Rules in Practice," Carnegie-Rochester Conference Series on Public Policy, 39, 195-214.
51. Taylor, John B. (1993b), Macroeconomic Policy in the World Economy: From Econometric Design to Practical Operation, W.W. Norton, New York.
52. Taylor, John B. (1999), Monetary Policy Rules, NBER and University of Chicago Press, Chicago.
53. Tobin, James (1965), "Money and Economic Growth," Econometrica, 33, 334-361.
54. Wieland, Volker (1998), "Monetary Policy under Uncertainty about the Natural Unemployment Rate," Finance and Economics Discussion Series, 98-22, Board of Governors of the Federal Reserve System, May.
55. Wolman, Alexander S. (2004), "Real Implications of the Zero Bound on Nominal Interest Rates," Journal of Money, Credit and Banking, forthcoming.