scholarly journals The Paradox of Global Thrift

2019 ◽  
Vol 109 (11) ◽  
pp. 3745-3779
Author(s):  
Luca Fornaro ◽  
Federica Romei
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
Interest Rates ◽  
Aggregate Demand ◽  
Global Scale ◽  
Zero Lower Bound ◽  
Fiscal Policies

This paper describes a paradox of global thrift. Consider a world in which interest rates are low and monetary policy is constrained by the zero lower bound. Now imagine that governments implement prudential financial and fiscal policies to stabilize the economy. We show that these policies, while effective from the perspective of individual countries, might backfire if applied on a global scale. In fact, prudential policies generate a rise in the global supply of savings and a drop in global aggregate demand. Weaker global aggregate demand depresses output in countries at the zero lower bound. Due to this effect, noncooperative financial and fiscal policies might lead to a fall in global output and welfare. (JEL E21, E23, E43, E44, E52, E62, F32)

scholarly journals Measuring the Effect of the Zero Lower Bound on Medium- and Longer-Term Interest Rates

2014 ◽  
Vol 104 (10) ◽  
pp. 3154-3185 ◽  
Author(s):  
Eric T. Swanson ◽  
John C. Williams
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Lower Bound ◽  
Private Sector ◽  
Interest Rates ◽  
Zero Lower Bound ◽  
Short Term ◽  
Macroeconomic Models ◽  
Monetary And Fiscal Policy ◽  
Effectiveness Of Monetary Policy

According to standard macroeconomic models, the zero lower bound greatly reduces the effectiveness of monetary policy and increases the efficacy of fiscal policy. However, private-sector decisions depend on the entire path of expected future short-term interest rates, not just the current short-term rate. Put differently, longer-term yields matter. We show how to measure the zero bound's effects on yields of any maturity. Indeed, 1- and 2-year Treasury yields were surprisingly unconstrained throughout 2008 to 2010, suggesting that monetary and fiscal policy were about as effective as usual during this period. Only beginning in late 2011 did these yields become more constrained. (JEL E43, E52, E62)

Monetary Policy Spillovers across the Pacific when Interest Rates Are at the Zero Lower Bound

2016 ◽  
Vol 15 (3) ◽  
pp. 1-27 ◽  
Author(s):  
Edda Claus ◽  
Iris Claus ◽  
Leo Krippner
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
Interest Rates ◽  
The United States ◽  
Asset Markets ◽  
Zero Lower Bound ◽  
Unconventional Monetary Policy ◽  
Monetary Policy Shocks ◽  
Short Term ◽  
Policy Shocks

To conduct monetary policy effectively, central banks need to understand the transmission of monetary policy into financial markets. In this paper we investigate the effects of Japanese and U.S. monetary policy shocks on their own asset markets, and the spillovers into each other's markets. Because short-term nominal interest rates have been effectively zero in Japan since January 1998 and in the United States from late 2008, however, monetary policy shocks cannot be quantified by considering observable changes in short-term market interest rates. Therefore, in our analysis we use a shadow short rate―a quantitative measure of overall conventional and unconventional monetary policy that is estimated from the term structure of interest rates. Our results suggest that the operation of monetary policy at the zero lower bound of interest rates alters the transmission of shocks. In particular, we find a limited response of exchange rates during the first episode of unconventional monetary policy in Japan but a significant impact since 2006.

READING KEYNES AT THE ZERO LOWER BOUND: THE GREAT DEPRESSION, THE LIQUIDITY TRAP, AND UNCONVENTIONAL POLICY

2018 ◽  
Vol 40 (3) ◽  
pp. 301-334 ◽  
Author(s):  
Richard Sutch
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
Interest Rates ◽  
Great Depression ◽  
Zero Lower Bound ◽  
Liquidity Trap ◽  
The Great Depression ◽  
Nominal Interest Rates

John Maynard Keynes’s analysis of the Great Depression has strong parallels to recent theorizing about the post-2008 Great Recession. There are also remarkable similarities between the two historical episodes: the collapse of demand for new fixed investment, the role of the zero lower bound liquidity trap in hampering conventional monetary policy, the multi-year period of near-zero short-term rates, and the protracted period of subnormal prosperity. A major difference between then and now is that monetary authorities in the recent situation actively pursued an unconventional policy with massive purchases of long-term securities. Keynes couldn’t convince authorities of his era to pursue such a plan, but it was precisely the monetary policy he advocated for a depressed economy stuck at the zero lower bound of nominal interest rates.

scholarly journals Monetary Policy, Financial Stability, and the Zero Lower Bound

2016 ◽  
Vol 106 (5) ◽  
pp. 39-42 ◽  
Author(s):  
Stanley Fischer
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
Interest Rates ◽  
Financial Stability ◽  
Central Banking ◽  
Zero Lower Bound ◽  
Short Term ◽  
Long Run ◽  
Nominal Interest Rates ◽  
Equilibrium Real Interest Rate

Much has happened in the world of central banking in the past decade. In this paper, I focus on three issues associated with the zero lower bound (ZLB) on short-term nominal interest rates and the nexus between monetary policy and financial stability: 1) whether we are moving toward a permanently lower long-run equilibrium real interest rate; 2) what steps can be taken to mitigate the constraints imposed by the ZLB; and 3) whether and how financial stability considerations should be incorporated in the conduct of monetary policy. These important topics deserve the attention of both academic and government professionals.

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