Artikel
Optimal rules for central bank interest rates subject to zero lower bound
The celebrated Taylor rule provides a simple formula that aims to capture how the central bank interest rate is adjusted as a linear function of inflation and output gap. However, the rule does not take explicitly into account the zero lower bound on the interest rate. Prior studies on interest rate selection subject to the zero lower bound have not produced derivations of explicit formulas. In this work, Taylor-like rules for central bank interest rates bounded below by zero are derived rigorously using a multi-parametric model predictive control framework. This framework is used to derive rules with or without inertia. The proposed approach is illustrated through simulations. Application of the approach to US economy data demonstrates its relevance and provides insight into the objectives underlying central bank interest rate decisions. A number of issues for future study are proposed.
- Language
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Englisch
- Bibliographic citation
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Journal: Economics: The Open-Access, Open-Assessment E-Journal ; ISSN: 1864-6042 ; Volume: 8 ; Year: 2014 ; Issue: 2014-37 ; Pages: 1-67 ; Kiel: Kiel Institute for the World Economy (IfW)
- Classification
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Wirtschaft
Monetary Policy
Optimization Techniques; Programming Models; Dynamic Analysis
- Subject
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Taylor rule
zero lower bound
liquidity trap
model predictive control
multiparametric programming
- Event
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Geistige Schöpfung
- (who)
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Singh, Ajay Pratap
Nikolaou, Michael
- Event
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Veröffentlichung
- (who)
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Kiel Institute for the World Economy (IfW)
- (where)
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Kiel
- (when)
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2014
- DOI
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doi:10.5018/economics-ejournal.ja.2014-37
- Handle
- Last update
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10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Artikel
Associated
- Singh, Ajay Pratap
- Nikolaou, Michael
- Kiel Institute for the World Economy (IfW)
Time of origin
- 2014
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Optimal Rules for Central Bank Interest Rates Subject to Zero Lower Bound
Determinacy and E-stability with interest rate rules at the zero lower bound
Estimating monetary policy rules when the zero lower bound on nominal interest rates is approached
Estimating monetary policy rules when the zero lower bound on nominal interest rates is approached
Fiscal activism and the zero nominal interest rate bound
Counter-cyclical fiscal rules and the zero lower bound
Exchange-rate policy and the zero bound on nominal interest
Fiscal Policy, Interest Rate Spreads, and the Zero Lower Bound