Policy Options at the Zero Lower Bound When Foresight is Limited
AEA Papers and Proceedings
vol. 109,
May 2019
(pp. 433-37)
Abstract
We reconsider several monetary and fiscal policies that have been proposed as tools of stabilization policy when conventional interest-rate policy is constrained by the zero lower bound on interest rates, assuming that households and firms are capable of explicit forward planning over only a limited horizon. The predicted effects of all of the policies are somewhat different than under rational expectations, but credible announcements about future policy can still influence behavior, and there is, if anything, an even stronger case for pursuing systematic policies outside crisis periods in order to shape expectations during a crisis.Citation
Woodford, Michael, and Yinxi Xie. 2019. "Policy Options at the Zero Lower Bound When Foresight is Limited." AEA Papers and Proceedings, 109: 433-37. DOI: 10.1257/pandp.20191084Additional Materials
JEL Classification
- D84 Expectations; Speculations
- E32 Business Fluctuations; Cycles
- E43 Interest Rates: Determination, Term Structure, and Effects
- E52 Monetary Policy
- E62 Fiscal Policy
- E63 Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- G01 Financial Crises