Description
BN PUBLISHING Monetary Policy Alternatives at the Zero Bound by Ben S Bernanke Vincent R Reinhart Brian P Sack
The success over the years in reducing inflation and consequently the average level of nominal interest rates has increased the likelihood that the nominal policy interest rate may become constrained by the zero lower bound. When that happens a central bank can no longer stimulate aggregate demand by further interestrate reductions and must rely on nonstandard policy alternatives. To assess the potential effectiveness of such policies we analyze the behavior of selected asset prices over short periods surrounding central bank statements or other types of financial or economic news and estimate noarbitrage models of the term structure for the United States and Japan. There is some evidence that central bank communications can help to shape public expectations of future policy actions and that asset purchases in large volume by a central bank would be able to affect the price or yield of the targeted asset.show more