Economics, Econometrics and Finance
5 years ago

Central banks must keep interest rates low to stimulate demand.

1 view
Springer texts in business and economics
The Liquidity Trap: Limits for Monetary Policy at the Effective Lower Bound
Jin Cao, Gerhard Illing

Paper Summary

The central bank should keep interest rates low for a long time to boost current demand by committing to low long-term rates. This helps prevent deflation and guides future policy decisions. Forward guidance, a key part of unconventional policies, stems from this commitment to optimal interest rate policy at the zero lower bound.

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