The Stochastic Lower Bound

Riccardo M. Masolo; Pablo E. Winant

doi:10.1016/j.econlet.2019.03.026

The Stochastic Lower Bound

Riccardo M. Masolo
, Pablo E. Winant

Bank of England
Centre For Macroeconomics
France and IZA

Research output: Contribution to journal › Article › peer-review

5 Citations (Scopus)

Abstract

Since the Great Recession policy rates have been extremely low, but neither absolutely constant, nor exactly set to zero. We thus augment a standard Zero Lower Bound (ZLB) model to study the effects of a Stochastic Lower Bound (SLB) on policy rates. We find that a less predictable SLB reduces the deflationary effects of negative demand shocks by lowering expectations of future values of the SLB at times when interest-rate cuts are not an option.

Original language	English
Pages (from-to)	54-57
Number of pages	4
Journal	Economics Letters
Volume	180
DOIs	https://doi.org/10.1016/j.econlet.2019.03.026
Publication status	Published - 1 Jul 2019
Externally published	Yes

Keywords

DSGE
Inflation
ZLB

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10.1016/j.econlet.2019.03.026

Cite this

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title = "The Stochastic Lower Bound",

abstract = "Since the Great Recession policy rates have been extremely low, but neither absolutely constant, nor exactly set to zero. We thus augment a standard Zero Lower Bound (ZLB) model to study the effects of a Stochastic Lower Bound (SLB) on policy rates. We find that a less predictable SLB reduces the deflationary effects of negative demand shocks by lowering expectations of future values of the SLB at times when interest-rate cuts are not an option.",

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AU - Winant, Pablo E.

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N2 - Since the Great Recession policy rates have been extremely low, but neither absolutely constant, nor exactly set to zero. We thus augment a standard Zero Lower Bound (ZLB) model to study the effects of a Stochastic Lower Bound (SLB) on policy rates. We find that a less predictable SLB reduces the deflationary effects of negative demand shocks by lowering expectations of future values of the SLB at times when interest-rate cuts are not an option.

AB - Since the Great Recession policy rates have been extremely low, but neither absolutely constant, nor exactly set to zero. We thus augment a standard Zero Lower Bound (ZLB) model to study the effects of a Stochastic Lower Bound (SLB) on policy rates. We find that a less predictable SLB reduces the deflationary effects of negative demand shocks by lowering expectations of future values of the SLB at times when interest-rate cuts are not an option.

KW - DSGE

KW - Inflation

KW - ZLB

UR - https://www.scopus.com/pages/publications/85064319762

U2 - 10.1016/j.econlet.2019.03.026

DO - 10.1016/j.econlet.2019.03.026

M3 - Article

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SN - 0165-1765

VL - 180

SP - 54

EP - 57

JO - Economics Letters

JF - Economics Letters

ER -

The Stochastic Lower Bound

Abstract

Keywords

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