Price Stability and Monetary Policy Effectiveness when Nominal Interest Rates are Bounded at Zero

@article{Coenen2003PriceSA,
  title={Price Stability and Monetary Policy Effectiveness when Nominal Interest Rates are Bounded at Zero},
  author={G. Coenen and Athanasios Orphanides and V. Wieland},
  journal={Advances in Macroeconomics},
  year={2003},
  volume={4}
}
This paper employs stochastic simulations of a small structural rational expectations model to investigate the consequences of the zero bound on nominal interest rates. We find that if the economy is subject to stochastic shocks similar in magnitude to those experienced in the United States over the 1980s and 1990s, the consequences of the zero bound are negligible for target inflation rates as low as 2 percent. However, the effects of the constraint are non-linear with respect to the inflation… Expand
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