Medium-Term Money Neutrality and the Effective Lower Bound / Gauti B. Eggertsson, Marc Giannoni.

Format:

Book

Author/Creator:

Eggertsson, Gauti B.

Contributor:

National Bureau of Economic Research.

Giannoni, Marc.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27669.

NBER working paper series no. w27669

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

Conventional wisdom suggests that medium-term money neutrality imposes strong limitations on the effects of monetary policy. The point of this paper is that models with medium- and long-term money neutrality are prone to generate non-existence of equilibria at the effective lower bound (ELB) on interest rates. Non-existence is suggestive of sharp output contractions --- so-called contractionary black holes --- at the ELB. Paradoxically, the case for expansionary monetary policy at the ELB is even stronger in models that feature near money neutrality. The results highlight the benefits of a monetary policy regime in which the central bank temporarily overshoots its inflation target once confronted by the ELB.

Notes:

Print version record

August 2020.