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Targeting Constant Money Growth at the Zero Lower Bound

Author

Listed:
  • Michael T. Belongia

    (University of Mississippi)

  • Peter N. Ireland

    (Boston College)

Abstract

Unconventional policy actions, including quantitative easing and forward guidance, taken during and since the financial crisis and Great Recession of 2007–09, allowed the Federal Reserve to influence long-term interest rates even after the federal funds rate hit its zero lower bound. Alternatively, similar policy actions could have been directed at stabilizing the growth rate of a monetary aggregate in the face of severe disruptions to the financial sector and the economy at large. A structural vector autoregression suggests it would have been feasible for the Fed to target the growth rate of a Divisia monetary aggregate once the federal funds rate had reached its zero lower bound and that doing so would have supported a stronger, more rapid recovery.

Suggested Citation

  • Michael T. Belongia & Peter N. Ireland, 2018. "Targeting Constant Money Growth at the Zero Lower Bound," International Journal of Central Banking, International Journal of Central Banking, vol. 14(2), pages 159-204, March.
    • Handle: RePEc:ijc:ijcjou:y:2018:q:1:a:4
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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