Download or read book Optimal Monetary Policy the Zero Bound and the Term Structure of Interest Rates written by Sven R. Skallsjö and published by . This book was released on 2004 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper studies optimal monetary policy and its implication for the term structure of interest rates when the nominal short rate is bounded at zero. We state the monetary authority's optimization problem in continuous time according to two specifications, interest rate stabilization and interest rate smoothing. For the former the optimization problem is solved analytically, while numerical procedures are adopted for the latter. The paper then turns to study implications for the term structure of interest rates under risk-neutrality. Term structure equations are solved numerically and implications for yield curves and yield volatility curves are discussed. Data for a low-interest rate country like Japan for 1996-2003 exhibits s-shaped yield curves and yield volatility curves. According to our results this shape is consistent with a smoothing objective for the short rate.

Download or read book Optimal Monetary Policy when Interest Rates are Bounded at Zero written by Ryō Katō and published by . This book was released on 2003 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper characterizes the optimal monetary policy reaction function in the presence of a zero lower bound on the nominal interest rate. We analytically prove and numerically show that the function is highly nonlinear, more expansionary, and more aggressive than the Taylor rule. We then test its empirical validity taking the case of Japan in the 1990s. Qualitatively, we find some evidence of nonlinear monetary policy. Quantitatively, we find the actual monetary policy to be too contractionary during the first half of the decade, while the low interest policy during the latter half turns out to be fairly consistent with the simulated path.

Download or read book Monetary Policy Alternatives at the Zero Bound written by Ben S. Bernanke and published by www.bnpublishing.com. This book was released on 2009-03 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The success over the years in reducing inflation and, consequently, the average level of nominal interest rates has increased the likelihood that the nominal policy interest rate may become constrained by the zero lower bound. When that happens, a central bank can no longer stimulate aggregate demand by further interest-rate reductions and must rely on "non-standard" policy alternatives. To assess the potential effectiveness of such policies, we analyze the behavior of selected asset prices over short periods surrounding central bank statements or other types of financial or economic news and estimate "noarbitrage" models of the term structure for the United States and Japan. There is some evidence that central bank communications can help to shape public expectations of future policy actions and that asset purchases in large volume by a central bank would be able to affect the price or yield of the targeted asset.

Download or read book Optimal Monetary Policy Under Discretio with a Zero Bound on Nominal Interest Rates written by Klaus Adam and published by . This book was released on 2004 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Optimal monetary policy under discretion with a zero bound on nominal interest rates written by Adam Klaus and published by . This book was released on 2004 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Optimal Monetary Policy Under Commitment with a Zero Bound on Nominal Interest Rates written by Klaus Adam and published by . This book was released on 2003 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Optimal Monetary Policy in a Liquidity Trap written by Gauti B. Eggertsson and published by . This book was released on 2003 with total page 77 pages. Available in PDF, EPUB and Kindle. Book excerpt: We consider the consequences for monetary policy of the zero floor for nominal interest rates. The zero bound can be a significant constraint on the ability of a central bank to combat deflation. We show, in the context of an intertemporal equilibrium model, that open-market operations, even of unconventional' types, are ineffective if they do not change expectations about the future conduct of policy; in this sense, a liquidity trap' is possible. Nonetheless, a credible commitment to the right sort of history-dependent policy can largely mitigate the distortions created by the zero bound. In our model, optimal policy involves a commitment to adjust interest rates so as to achieve a time-varying price-level target, when this is consistent with the zero bound. We also discuss ways in which other central-bank actions, while irrelevant apart from their effects on expectations, may help to make credible a central bank's commitment to its target, and consider implications for the policy options currently available for overcoming deflation in Japan

Download or read book The Zero Bound on Nominal Interest Rates and Optimal Monetary Policy Under Discretion written by Anton Nakov and published by . This book was released on 2004 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: I study how the zero bound on nominal interest rates affects optimal discretionary monetary policy within the standard New Keynesian framework. I find that the non-negativity constraint implies an optimal policy which is more expansionary and more aggressive near the zero bound compared to the optimal rule, which ignores this constraint. This "precautionary loosening" of monetary policy when the risk of deflation is high is required to offset the negative effect of private sector expectations on the current output gap and inflation. The effect is found to be quantitatively significant and to increase with the variance and persistence of the natural real interest rate.

Download or read book Optimal Monetary and Fiscal Policy with a Zero Bound on Nominal Interest Rates written by Sebastian Schmidt and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Designing a Simple Loss Function for Central Banks written by Davide Debortoli and published by International Monetary Fund. This book was released on 2017-07-21 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: Yes, it makes a lot of sense. This paper studies how to design simple loss functions for central banks, as parsimonious approximations to social welfare. We show, both analytically and quantitatively, that simple loss functions should feature a high weight on measures of economic activity, sometimes even larger than the weight on inflation. Two main factors drive our result. First, stabilizing economic activity also stabilizes other welfare relevant variables. Second, the estimated model features mitigated inflation distortions due to a low elasticity of substitution between monopolistic goods and a low interest rate sensitivity of demand. The result holds up in the presence of measurement errors, with large shocks that generate a trade-off between stabilizing inflation and resource utilization, and also when ensuring a low probability of hitting the zero lower bound on interest rates.

Download or read book Optimal Monetary Policy with a Zero Bound on Nominal Interest Rates written by Roberto Mario Billi and published by . This book was released on 2005 with total page 110 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Japan s Financial Crisis and Its Parallels to U S Experience written by Ryōichi Mikitani and published by Peterson Institute. This book was released on 2000 with total page 256 pages. Available in PDF, EPUB and Kindle. Book excerpt: Japan is only one of many industrialized economies to suffer a financial crisis in the past 15 years, but it has suffered the most from its crisis--as measured in lost output and investment opportunities, and in the direct costs of clean-up. Comparing the response of Japanese policy in the 1990s to that of US monetary and financial policy to the American Savings and Loan Crisis of the late 1980s sheds light on the reasons for this outcome. This volume was created by bringing together several leading academics from the United States and Japan--plus former senior policymakers from both countries--to discuss the challenges to Japanese financial and monetary policy in the 1990s. The papers address in turn both the monetary and financial aspects of the crisis, and the discussants bring together broad themes across the two countries' experiences. As the papers in this Special Report demonstrate, while the Japanese government's policy response to its banking crisis in the 1990s was slow in comparison to that of the US government a decade earlier, the underlying dynamics were similar. A combination of mismanaged partial deregulation and regulatory forebearance gave rise to the crisis and allowed it to deepen, and only the closure of some banks and injection of new capital into others began the resolution. The Bank of Japan's monetary policy from the late 1980s onward, however, was increasingly out of step with US or other developed country norms. In particular, the Bank of Japan's limited response to deflation after being granted independence in 1998 stands out as a dangerous and unusual stance.

Download or read book Optimal Monetary Policy and Term Structure in a Continuous Time DSGE Model written by Haitao Li and published by . This book was released on 2019 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study optimal monetary policy, macro dynamics and their implications on the term structure of interest rates in a continuous-time New-Keynesian model. With a quadratic cost function and regime-dependent monetary discount rates, the time-consistent optimal monetary policy is regime-dependent linear interest rate rules in inflation and output gaps. This optimal interest rate rule converges to zero if monetary authority extremely concerns immediate macro stability. The optimal interest rate rules and the equilibrium dynamics of inflation and output gap form a regime-dependent term structure model. We take the model to the US data and find that the Fed had followed two distinct interest rate rules during 1952-2007, the near-optimal one is more stabilizing than the non-optimal one.

Download or read book Monetary Policy with Very Low Inflation in the Pacific Rim written by Takatoshi Ito and published by University of Chicago Press. This book was released on 2007-11-01 with total page 426 pages. Available in PDF, EPUB and Kindle. Book excerpt: Extremely low inflation rates have moved to the forefront of monetary policy discussions. In Asia, a number of countries—most prominently Japan, but also Taiwan and China—have actually experienced deflation over the last fifteen years. Monetary Policy with Very Low Inflation in the Pacific Rim explores the factors that have contributed to these circumstances and forecasts some of the potential challenges faced by these nations, as well as some potential solutions. The editors of this volume attribute low inflation and deflation in the region to a number of recent phenomena. Some of these episodes, they argue, may be linked to rapid growth on the supply side of economies. Here, inadequate demand policy can produce what is referred to as a "liquidity trap" in which the expectation of falling prices encourages agents to defer costly purchases, thereby discouraging growth. Low inflation rates can also be traced to the presence of a "zero-lower bound" on interest rates, as well as the inflation-targeting phenomenon. Targets have been set so low, the editors argue, that in some cases a few bad shocks lead to deflation.

Download or read book Optimal Monetary and Fiscal Policy at the Zero Lower Bound in a Small Open Economy written by Saroj Bhattarai and published by . This book was released on 2017 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate open economy dimensions of optimal monetary and fiscal policy at the zero lower bound (ZLB) in a small open economy model. At positive interest rates, the trade elasticity has negligible effects on optimal policy. In contrast, at the ZLB, the trade elasticity plays a key role in optimal policy prescriptions. The way in which the trade elasticity shapes policy depends on the government's ability to commit. Under discretion, the increase in government spending at the ZLB depends critically on the trade elasticity. Under commitment, the difference between future and current policies, both for domestic inflation and government spending, is smaller when the trade elasticity is higher.

Download or read book Monetary Policy and the Term Structure of Nominal Interest Rates written by Charles Evans and published by . This book was released on 1997 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Enabling Deep Negative Rates to Fight Recessions A Guide written by Ruchir Agarwal and published by International Monetary Fund. This book was released on 2019-04-29 with total page 89 pages. Available in PDF, EPUB and Kindle. Book excerpt: The experience of the Great Recession and its aftermath revealed that a lower bound on interest rates can be a serious obstacle for fighting recessions. However, the zero lower bound is not a law of nature; it is a policy choice. The central message of this paper is that with readily available tools a central bank can enable deep negative rates whenever needed—thus maintaining the power of monetary policy in the future to end recessions within a short time. This paper demonstrates that a subset of these tools can have a big effect in enabling deep negative rates with administratively small actions on the part of the central bank. To that end, we (i) survey approaches to enable deep negative rates discussed in the literature and present new approaches; (ii) establish how a subset of these approaches allows enabling negative rates while remaining at a minimum distance from the current paper currency policy and minimizing the political costs; (iii) discuss why standard transmission mechanisms from interest rates to aggregate demand are likely to remain unchanged in deep negative rate territory; and (iv) present communication tools that central banks can use both now and in the event to facilitate broader political acceptance of negative interest rate policy at the onset of the next serious recession.