New interest rate rule eliminates economic uncertainty in liquidity trap!
A new interest rate rule has been developed to achieve the best economic balance during a liquidity trap. This rule involves keeping interest rates at zero for longer periods based on past inflation levels. By adjusting interest rates in this way, the economy can reach a stable equilibrium without uncertainty. Following a standard Taylor rule outside the zero lower bound on interest rates is not enough to ensure this stability. The key is to respond strongly to past inflation deviations by committing to zero interest rates for an appropriate length of time.