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Thursday, April 13, 2017

The Zero Lower Bound on Interest Rates: How Should the Fed Respond?

Ben Bernanke:

...the Fed and other central banks cannot ignore the risks created by a low level of “normal” interest rates, which in turn limit the scope for interest-rate cuts. A wide-ranging discussion of alternative policy approaches would thus be welcome. Although raising the inflation target is one of the options that should be considered, that approach has significant drawbacks. Fortunately, there are promising policy options that may be able to mitigate the effects of the zero lower bound on interest rates without forcing the public to accept a permanently higher rate of inflation. Two such options (which are related, and could be combined) are price-level targeting and a “make-up” approach, under which the central bank commits to compensating for “missing” monetary ease after the economy leaves the zero lower bound.

Much more here: The zero lower bound on interest rates: How should the Fed respond? (link fixed).

    Posted by on Thursday, April 13, 2017 at 06:59 AM in Economics, Monetary Policy | Permalink  Comments (68)


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