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Book/Printed Material A monetary policy rule for automatic prevention of a liquidity trap

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Title

  • A monetary policy rule for automatic prevention of a liquidity trap

Summary

  • "In analyses of "liquidity trap" problems associated with the zero lower bound (ZLB) on nominal interest rates, it is important to emphasize the difference between policy rule changes, intended to help escape an existing ZLB situation, and maintained policy rules designed so as to avoid ZLB situations. Analysis assuming that rule changes would lead to a new RE equilibrium immediately seems implausible. Accordingly, the paper focuses on the design of a rule that should retain stabilization effectiveness even if the economy is temporarily shocked into a ZLB situation. The rule considered is one that uses as its instrument variable a weighted average of an interest rate and the rate of depreciation of the nominal exchange rate. With a small weight attached to the depreciation term, it will be nearly irrelevant in normal situations but call for strong adjustments when the ZLB condition prevails. Stabilizing properties of this "MC" rule are studied within a small open economy model developed by McCallum and Nelson. Results indicate that under ZLB conditions the MC rule will provide strong stabilizing policy actions yet, under conditions such that the ZLB constraint is not relevant, the MC rule need not hinder monetary policy"--National Bureau of Economic Research web site.

Names

  • McCallum, Bennett T.
  • National Bureau of Economic Research

Created / Published

  • Cambridge, MA : National Bureau of Economic Research, c2005.

Headings

  • -  Interest rates--Mathematical models
  • -  Liquidity (Economics)--Mathematical models
  • -  Monetary policy--Mathematical models

Notes

  • -  Title from PDF file as viewed on 2/4/2005.
  • -  Includes bibliographical references.
  • -  Also available in print.
  • -  Mode of access: World Wide Web.
  • -  System requirements: Adobe Acrobat Reader.

Call Number/Physical Location

  • HB1

Digital Id

Library of Congress Control Number

  • 2005616604

Access Advisory

  • Unrestricted online access

Online Format

  • image
  • pdf

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Cite This Item

Citations are generated automatically from bibliographic data as a convenience, and may not be complete or accurate.

Chicago citation style:

Mccallum, Bennett T, and National Bureau Of Economic Research. A Monetary Policy Rule for Automatic Prevention of a Liquidity Trap. Cambridge, MA: National Bureau of Economic Research, 2005. Pdf. https://aj.sunback.homes/item/2005616604/.

APA citation style:

McCallum, B. T. & National Bureau Of Economic Research. (2005) A Monetary Policy Rule for Automatic Prevention of a Liquidity Trap. Cambridge, MA: National Bureau of Economic Research. [Pdf] Retrieved from the Library of Congress, https://aj.sunback.homes/item/2005616604/.

MLA citation style:

Mccallum, Bennett T, and National Bureau Of Economic Research. A Monetary Policy Rule for Automatic Prevention of a Liquidity Trap. Cambridge, MA: National Bureau of Economic Research, 2005. Pdf. Retrieved from the Library of Congress, <aj.sunback.homes/item/2005616604/>.