Economics, Econometrics and Finance
3 years ago

Low-interest-rate environment leads to worsened macroeconomic performance and volatility

Journal of Economic Dynamics and Control
Macroeconomic stabilisation and monetary policy effectiveness in a low-interest-rate environment
Günter Coenen, Carlos Montes-Galdón, Sebastian Schmidt

Paper Summary

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The decline in interest rates limits policy options during recessions. This can lead to negative effects on inflation and economic activity. To counter this, using nonstandard tools like forward guidance and asset purchases can help. Strategies like price-level targeting can also mitigate these negative effects.