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In a two-country DSGE model, the effects of foreign demand shocks on the home country are greatly amplified if the home economy is constrained by the zero lower bound for policy interest rates. This result applies even to countries that are relatively closed to trade such as the United States....
Persistent link: https://www.econbiz.de/10008615670
This paper uses a DSGE model to examine the effects of an expansion in government spending in a liquidity trap. If the liquidity trap is very prolonged, the spending multiplier can be much larger than in normal circumstances, and the budgetary costs minimal. But given this "fiscal free lunch,"...
Persistent link: https://www.econbiz.de/10008679698
Persistent link: https://www.econbiz.de/10011027028
When the nominal interest rate reaches its zero lower bound, credibility is crucial for conducting forward guidance. We determine optimal policy in a New Keynesian model when the central bank has imperfect credibility and cannot set the nominal interest rate below zero. In our model, an...
Persistent link: https://www.econbiz.de/10008498908
In an environment of low inflation, the Federal Reserve faces the risk that it has not provided enough monetary stimulus even when it has pushed the short-term nominal interest rate to its lower bound of zero. Assuming the nominal Treasury-bill rate has been lowered to zero, this paper considers...
Persistent link: https://www.econbiz.de/10005513014
Persistent link: https://www.econbiz.de/10005390196
The traditional view of the monetary transmission mechanism rests on the premise that the Federal Reserve (Fed) controls the level of the federal funds rate via open market operations and the liquidity effect. By contrast, this paper argues that the Fed also manipulates the federal funds rate...
Persistent link: https://www.econbiz.de/10005393806