Zero Bound on Interest Rates and Optimal Monetary Policy¶
Eggertsson, & Woodford. (2003). Zero Bound on Interest Rates and Optimal Monetary Policy. Brookings Papers on Economic Activity.
Cited by¶
1 citation across 1 artifact.
Each citation links to the sentence it supports in the citing article.
Domain-specific¶
- Liquidity Trap
- The same regime characterization (rate at the bound, cash and short bonds perfect substitutes, transmission severed while the lever moves) fits the Bank of Japan from the mid-1990s, the Fed in 2008–2015 and 2020–2022, the ECB, the SNB, and the Riksbank, replacing case-by-case "why easing failed" stories with one diagnosis. Unconventional-policy design (the escape menu) — the trap fixes the live toolkit by naming which channel is dead: quantitative easing for the term-premium and credit-spread channels, forward guidance for expected future short rates, fiscal expansion to bypass the monetary channel, negative rates capped by the option to hold physical cash. IS-LM macro modeling — Hicks's formalization renders the trap as a flat (horizontal) LM segment at the bound, where shifting the IS curve via fiscal policy moves output but monetary expansion does not move the rate. New Keynesian / expectations-based modeling — Eggertsson-Woodford embed the trap in models with an explicit expectations structure, where at the bound traction depends on credibly committing to future policy rather than on any current quantity (Krugman's "credibly promise to be irresponsible")
This sourceEggertsson and Woodford's New Keynesian analysis of the zero bound, in which policy works through commitment to history-dependent future policy rather than current base-money expansion.
Supported in partVerified against the source
- The same regime characterization (rate at the bound, cash and short bonds perfect substitutes, transmission severed while the lever moves) fits the Bank of Japan from the mid-1990s, the Fed in 2008–2015 and 2020–2022, the ECB, the SNB, and the Riksbank, replacing case-by-case "why easing failed" stories with one diagnosis. Unconventional-policy design (the escape menu) — the trap fixes the live toolkit by naming which channel is dead: quantitative easing for the term-premium and credit-spread channels, forward guidance for expected future short rates, fiscal expansion to bypass the monetary channel, negative rates capped by the option to hold physical cash. IS-LM macro modeling — Hicks's formalization renders the trap as a flat (horizontal) LM segment at the bound, where shifting the IS curve via fiscal policy moves output but monetary expansion does not move the rate. New Keynesian / expectations-based modeling — Eggertsson-Woodford embed the trap in models with an explicit expectations structure, where at the bound traction depends on credibly committing to future policy rather than on any current quantity (Krugman's "credibly promise to be irresponsible")
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