Three Lessons for Monetary Policy in a Low Inflation Era

摘要

The zero lower bound on nominal interest rates constrains the central bank's211u001eability to stimulate the economy during downturns. We use the FRB/US model to 211u001equantify the effects of the bound on macroeconomic stabilization and to explore 211u001ehow policy can be designed to minimize these effects. During particularly severe 211u001econtractions, open-market operations alone may be insufficient to restore 211u001eequilibrium; some other stimulus is needed. Abstracting from such rare events, if 211u001epolicy follows the Taylor rule and targets a zero inflation rate, there is a 211u001esignificant increase in the variability of output but not inflation.