CXO

Conducting Monetary Policy When Interest Rates Are Near Zero

Date Added: Oct 2009
Format: PDF

This paper explains the concerns that are associated with the combination of deflation, low economic activity, and zero nominal interest rates and describes how monetary policy might be conducted in such a situation. The authors argue that avoiding expectations of deflation is key and that the monetary authority needs to demonstrate an unequivocal commitment to preventing deflation. They also argue that price-level targeting might be a good device for communicating such a commitment.