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The Risk of Returning to the Effective Lower Bound: An Implication for Inflation Dynamics After Lift-Off

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  • Timothy S. Hills
  • Taisuke Nakata
  • Sebastian Schmidt

Abstract

In this note, we analyze an implication of the effective lower bound (ELB) risk--the possibility that adverse shocks will force policymakers in the future to lower the policy rate to the ELB--on inflation dynamics after liftoff.

Suggested Citation

  • Timothy S. Hills & Taisuke Nakata & Sebastian Schmidt, 2016. "The Risk of Returning to the Effective Lower Bound: An Implication for Inflation Dynamics After Lift-Off," FEDS Notes 2016-02-12-2, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfn:2016-02-12-2
    DOI: 10.17016/2380-7172.1690
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    References listed on IDEAS

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    1. Coenen Günter & Orphanides Athanasios & Wieland Volker, 2004. "Price Stability and Monetary Policy Effectiveness when Nominal Interest Rates are Bounded at Zero," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-25, February.
    2. Taisuke Nakata & Sebastian Schmidt & Timothy Hills, 2016. "The Risky Steady State and the Interest Rate Lower Bound," 2016 Meeting Papers 39, Society for Economic Dynamics.
    3. Laurence M. Ball, 2013. "The Case for Four Percent Inflation," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 13(2), pages 17-31.
    4. Reifschneider, David & Willams, John C, 2000. "Three Lessons for Monetary Policy in a Low-Inflation Era," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 936-966, November.
    5. Francois Gourio & Jonas Fisher, 2015. "Risk Management for Monetary Policy at the Zero Lower Bound," 2015 Meeting Papers 665, Society for Economic Dynamics.
    6. Hess Chung & Edward Herbst & Michael T. Kiley, 2015. "Effective Monetary Policy Strategies in New Keynesian Models: A Reexamination," NBER Macroeconomics Annual, University of Chicago Press, vol. 29(1), pages 289-344.
    7. David L. Reifschneider & John C. Williams, 2000. "Three lessons for monetary policy in a low-inflation era," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 936-978.
    8. Olivier Blanchard & Giovanni Dell'Ariccia & Paolo Mauro, 2010. "Rethinking Macroeconomic Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 199-215, September.
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    10. Charles Evans & Jonas Fisher & Francois Gourio & Spencer Krane, 2015. "Risk Management for Monetary Policy Near the Zero Lower Bound," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(1 (Spring), pages 141-219.
    11. Olivier Blanchard & Giovanni Dell'Ariccia & Paolo Mauro, 2010. "Rethinking Macroeconomic Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 199-215, September.
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    Cited by:

    1. Mitsuru Katagiri, 2016. "Forward Guidance as a Monetary Policy Rule," Bank of Japan Working Paper Series 16-E-6, Bank of Japan.
    2. Taisuke Nakata & Sebastian Schmidt, 2016. "The Risk-Adjusted Monetary Policy Rule," Finance and Economics Discussion Series 2016-061, Board of Governors of the Federal Reserve System (U.S.).

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