Forward guidance at the zero lower bound in a model of price-level targeting

Arbeitspapier

We study monetary policy at the ZLB in a traceable three-period model, in which price-level targeting emerges endogenously in the welfare function. We characterize optimal price-level forward guidance under discretion and commitment. Potentially non-monotonic discretionary welfare losses are lowest with perfectly exible prices. Price-level targeting introduces a new constraint on optimal forward guidance that restricts the credible amount of overshooting. With this constraint, the zero lower bound may be binding even after the shock has abated. We characterize conditions when the commitment to hold nominal rates at zero for an extended period is optimal. Finally, we introduce government spending and show that under persistently low policy rates optimal government spending becomes more front-loaded, while procyclical austerity fares worse than discretionary government spending.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Munich Discussion Paper ; No. 2015-1

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Interest Rates: Determination, Term Structure, and Effects ; Monetary Policy ; Central Banks and Their Policies
• Thema: zero lower bound ; forward guidance ; price-level target ; optimal policy

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Illing, Gerhard ; Siemsen, Thomas
• Ereignis: Veröffentlichung
• (wer): Ludwig-Maximilians-Universität München, Volkswirtschaftliche Fakultät
• (wo): München
• (wann): 2015

Weitere Informationen

• DOI: doi:10.5282/ubm/epub.22797
• Handle: http://hdl.handle.net/10419/110651
• URN: urn:nbn:de:bvb:19-epub-22797-0
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ