A simple way to overcome the zero lower bound of interest rates for central banks: Evidence from the Fed and the ECB within the financial crisis Online publication date: Sun, 26-Jun-2011
by Jens Klose
International Journal of Monetary Economics and Finance (IJMEF), Vol. 4, No. 3, 2011
Abstract: In this paper, we investigate how Fed and ECB monetary policy changed within the financial crisis of 2007-2010. We argue that due to the very low interest rates classical monetary policy rules like, e.g., the Taylor rule could lead to false conclusions. We propose a new way of conducting monetary policy when the zero lower bound becomes binding via shaping the inflation expectations. Our results indicate that using this modified Taylor rule shows similar tendencies in the reaction coefficients as the standard Taylor rule at least if no interest smoothing term is included.
Online publication date: Sun, 26-Jun-2011
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