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| Author: | Fuhrer, J. Madigan, B. |
| Title: | Monetary policy when interest rates are bounded at zero |
| Journal: | Review of Economics and Statistics
1997 : NOV, VOL. 79:4, p. 573-585 |
| Index terms: | STATISTICS MONETARY POLICY INTEREST RATES |
| Language: | eng |
| Abstract: | This paper assesses the importance of the zero lower bound on nominal interest rates for the interest-rate channel of monetary policy. The authors simulate several interest-rate setting policy rules with either high or low inflation targets. They determine the extent to which the zero bound prevents real rates from falling, thus cushioning aggregate output in response to negative spending shocks. For small temporaty and large permanent shocks, the output path with zero inflation lies modestly below that for higher inflation. |
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