Browsing by Subject "zero interest rate lower bound"

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  • Honkapohja, Seppo; Mitra, Kaushik (2015)
    Bank of Finland Research Discussion Papers 9/2015
    Published in Manchester School, Volume 83, Issue Supplement S2, pages 27–59, September 2015
    We examine global dynamics under learning in New Keynesian models with price level targeting that is subject to the zero lower bound. The role of forward guidance is analyzed under transparency about the policy rule. Properties of transparent and non-transparent regimes are compared to each other and to the corresponding cases of inflation targeting. Robustness properties for different regimes are examined in terms of the domain of attraction of the targeted steady state and volatility of inflation, output and interest rate. We analyze the effect of higher inflation targets and large expectational shocks for the performance of these policy regimes.
  • Honkapohja, Seppo (2015)
    Bank of Finland Research Discussion Papers 18/2015
    Published in Empirica, Issue 2, 1 May (2016): 235-256
    ​Many central banks have lowered their interest rates close to zero in response to the crisis since 2008. In standard monetary models the zero lower bound (ZLB) constraint implies the existence of a second steady state in addition to the inflation-targeting steady state. Large scale asset purchases (APP) have been used as a tool for easing of monetary policy in the ZLB regime. I provide a theoretical discussion of these issues using a stylized general equilibrium model in a global nonlinear setting. I also review briefly the empirical literature about effects of APP’s.
  • Honkapohja, Seppo; Kaushik, Mitra (2018)
    Bank of Finland Research Discussion Papers 5/2018
    Published in Journal of Monetary Economics 2020 ; 116 ; December https://doi.org/10.1016/j.jmoneco.2019.09.009
    We examine global dynamics under learning in a nonlinear New Keynesian model when monetary policy uses price-level targeting and compare it to inflation targeting. Domain of attraction of the targeted steady state gives a robustness criterion for policy regimes. Robustness of price-level targeting depends on whether a known target path is incorporated into learning. Credibility is measured by accuracy of this forecasting method relative to simple statistical forecasts. Credibility evolves through reinforcement learning. Initial credibility and initial level of target price are key factors influencing performance. Results match the Swedish experience of price level stabilization in 1920's and 30s.