Should the ECB adjust its strategy in the face of a lower r*?
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- dc.contributor.author Andrade, Philippe
- dc.contributor.author Galí, Jordi
- dc.contributor.author Le Bihan, Hervé
- dc.contributor.author Matheron, Julien
- dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
- dc.date.accessioned 2024-11-14T10:09:59Z
- dc.date.available 2024-11-14T10:09:59Z
- dc.date.issued 2021-01-15
- dc.date.modified 2024-11-14T10:07:40Z
- dc.description.abstract We address this question using an estimated New Keynesian DSGE model of the Euro Area with trend inï¬ ation, imperfect indexation, and a lower bound on the nominal interest rate. In this setup, a decrease in the steady-state real interest rate, r*, increases the probability of hitting the lower bound constraint, which entails signiï¬ cant welfare costs and warrants an adjustment of the monetary policy strategy. Under an unchanged monetary policy rule, an increase in the inï¬ ation target of eight tenth the size of the drop in the real natural rate of interest is warranted. Absent an increase in the inï¬ ation target, and assuming the effective lower bound prevents the ECB from implementing more aggressive negative interest rate policies, adjusting the monetary strategy requires considering alternative instruments or policy rules, such as committing to make-up for recent, below-target inï¬ ation realizations.
- dc.format.mimetype application/pdf*
- dc.identifier https://econ-papers.upf.edu/ca/paper.php?id=1767
- dc.identifier.citation Journal of Economic Dynamics and Control, 132, 2021, 1-23
- dc.identifier.uri http://hdl.handle.net/10230/68659
- dc.language.iso eng
- dc.relation.ispartofseries Economics and Business Working Papers Series; 1767
- dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
- dc.rights.accessRights info:eu-repo/semantics/openAccess
- dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
- dc.subject.keyword inflation target
- dc.subject.keyword effective lower bound
- dc.subject.keyword monetary policy strategy
- dc.subject.keyword euro-area.
- dc.subject.keyword Macroeconomics and International Economics
- dc.title Should the ECB adjust its strategy in the face of a lower r*?
- dc.title.alternative
- dc.type info:eu-repo/semantics/workingPaper