There exist difficulties in escaping from stagnation and/or deflation if the economy hits zero lower bounds on short-term nominal interest rates because the central bank cannot stimulate the economy further using rate cuts. How can it escape from them? Answering the question, we extend a...

I characterize optimal monetary and fiscal policy in a stochastic New Keynesian model when nominal interest rates may occasionally hit the zero lower bound. The benevolent policymaker controls the short-term nominal interest rate and the level of government spending. Under discretionary policy,...

We analyse nominal exchange rate and price dynamics after risk premium shocks with short-term interest rates constrained by the zero lower bound (ZLB). In a small-open-economy DSGE model, temporary risk premium shocks lead to shifts of the exchange rate and the price level if a central bank...