The Zero Lower Bound on the Interest Rate and a Neo-Classical Phillips Curve

Arbeitspapier

With sticky prices, optimizing agents and money in the utility function, I derive the exact analytical solution for optimal monetary policy given a zero lower bound (ZLB) on the interest rate. The Phillips curve is Neo-Classical, and the ZLB is then not a constraint on optimal policy. Optimal policy is history dependent even without a commitment problem and implements a Friedman rule equilibrium. The role of forward guidance in policy is more limited than under a New-Keynesian Phillips curve. The optimal policy rule intercept term is time varying and depends on the variance of the natural real rate.

Object Details

• ISBN: 978-82-7553-563-2
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2010/13

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Monetary Policy ; Policy Objectives; Policy Designs and Consistency; Policy Coordination
• Subject: zero lower bound on interest rates ; monetary policy

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Alstadheim, Ragna
• Event: Veröffentlichung
• (who): Norges Bank
• (where): Oslo
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/209958
• Last update: 10.03.2025, 11:42 AM CET