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An IS-LM analysis of the zero-bound problem

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  • Evan F. Koenig

Abstract

Policy options for stimulating real activity are limited once short-term interest rates have been driven to zero. Monetary policy makers face the difficult challenge of preventing or reversing declines in near-term inflation expectations while preserving confidence in the central bank's commitment to long-term price stability. Fiscal policy makers must commit to a credible plan for maintaining or raising near-term government purchases while minimizing increases in future marginal tax rates.

Suggested Citation

  • Evan F. Koenig, 2011. "An IS-LM analysis of the zero-bound problem," Staff Papers, Federal Reserve Bank of Dallas, issue Apr.
    • Handle: RePEc:fip:feddst:y:2011:i:apr:n:13
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    References listed on IDEAS

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    1. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
    2. Jim Dolmas, 2005. "A fitter, trimmer core inflation measure," Southwest Economy, Federal Reserve Bank of Dallas, issue May, pages 1,4-9.
    3. Koenig, Evan F., 1996. "Targeting nominal income: A closer look," Economics Letters, Elsevier, vol. 51(1), pages 89-93, April.
    4. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Michl Aleš, 2019. "Ten Years Later: Lessons for DSGE Builders and Czech Policy Makers," Review of Economic Perspectives, Sciendo, vol. 19(3), pages 159-174, September.

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