Taisuke Nakata ワーキングペーパー一覧に戻る

  • Conservatism and Liquidity Traps

    Abstract

    In an economy with an occasionally binding zero lower bound (ZLB) constraint, the anticipation of future ZLB episodes creates a trade-off for discretionary central banks between inflation and output stabilization. As a consequence, inflation systematically falls below target even when the policy rate is above zero. Appointing Rogoff’s (1985) conservative central banker mitigates this deflationary bias away from the ZLB and enhances welfare by improving allocations both at and away from the ZLB.

    Introduction

    Over the past few decades, a growing number of central banks around the world have adopted inflation targeting as a policy framework. The performance of inflation targeting in practice has been widely considered a success. However, some economists and policymakers have voiced the need to re-examine central banks’ monetary policy frameworks in light of the liquidity trap conditions currently prevailing in many advanced economies. As shown in Eggertsson and Woodford (2003) among others, the zero lower bound (ZLB) on nominal interest rates severely limits the ability of inflation-targeting central banks to stabilize the economy absent an explicit commitment technology. Some argue that the ZLB is likely to bind more frequently and that liquidity trap episodes might hit the economy more severely in the future than they have in the past. Understanding the implications of the ZLB for the conduct of monetary policy is therefore of the utmost importance for economists and policymakers alike.

  • Reputation and Liquidity Traps

    Abstract

    Can the central bank credibly commit to keeping the nominal interest rate low for an extended period of time in the aftermath of a deep recession? By analyzing credible plans in a sticky-price economy with occasionally binding zero lower bound constraints, I find that the answer is yes if contractionary shocks hit the economy with sufficient frequency. In the best credible plan, if the central bank reneges on the promise of low policy rates, it will lose reputation and the private sector will not believe such promises in future recessions. When the shock hits the economy sufficiently frequently, the incentive to maintain reputation outweighs the short-run incentive to close consumption and inflation gaps, keeping the central bank on the originally announced path of low nominal interest rates.

    Introduction

    Statements about the period during which the short-term nominal interest rate is expected to remain near zero have been an important feature of recent monetary policy in the United States. The FOMC has stated that a highly accomodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. With the current policy rate at its effective lower bound, the expected path of short-term rates is a prominent determinant of the long-term interest rates, which affects the decisions of households and businesses. Thus, the statement expressing the FOMC’s intention to keep the policy rate low for a considerable period has likely done much to keep the long-term nominal rates low and thereby stimulating economic activities.

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