Abstract
Central banks face uncertainty about the true location of the effective lower bound (ELB) on nominal interest rates. We model optimal discretionary monetary policy during a liquidity trap when the central bank designs policy that is robust with respect to the location of the ELB. If the central bank fears the worst-case location of the ELB, monetary conditions will be more expansionary in the period before the liquidity trap.
Funding source: DAAD PPP "Uncertainty and Monetary Policy"
Acknowledgement
I am grateful to an anonymous referee for very helpful comments and to David Finck for fruitful discussions.
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Articles in the same Issue
- Contributions
- Quantifying the Effects of Patent Protection on Innovation, Imitation, Growth, and Aggregate Productivity
- Sectoral Productivity Gaps and Aggregate Productivity
- Optimal Industrial Policies in a Two-Sector-R&D Economy
- Entry Costs, Task Variety, and Skill Flexibility: A Simple Theory of (Top) Income Skewness
- Leaning-Against-the-Wind: Which Policy and When?
- Tax Policy and Toxic Housing Bubbles in China
- The Cyclicality of On-the-Job Search Effort
- A Test of Neo-Fisherism: 1964–2019
- Advances
- Evaluating Changes in the Transmission Mechanism of Government Spending Shocks
- Contributions
- On the Limits of Macroprudential Policy
- Robust Monetary Policy Under Uncertainty About the Lower Bound
- Monetary Policy and Cross-Border Interbank Market Fragmentation: Lessons from the Crisis
- International Welfare Spillovers of National Pension Schemes