Economics, Econometrics and Finance
4 years ago

Monetary Policy Can Still Stabilize Economy at Zero Interest Rates

RePEc: Research Papers in Economics
Theoretical Analysis Regarding a Zero Lower Bound on Nominal Interest Rates
Bennett T. McCallum

Paper Summary

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The article discusses the idea of a zero lower bound on interest rates and how it affects monetary policy. It looks at how low inflation can impact real interest rates and whether monetary policy can still work without using money in models. The researchers also explore how Taylor rules can help stabilize the economy in this context. The main finding is that even if interest rates are stuck at zero, monetary policy can still be effective through the foreign exchange market. This was shown in a model of an open economy.