TY - JOUR
T1 - Animal spirits, risk premia and monetary policy at the zero lower bound
AU - Proano, Christian R
AU - Lojak, Benjamin
PY - 2020
Y1 - 2020
N2 - In this paper we investigate the risk-related effects of monetary policy in normal times, as well as in periods where the zero lower bound (ZLB) binds, in a stylized macroeconomic model with boundedly rational beliefs. In our model, financial market participants use heuristics to assess the risk premium over the policy rate in accordance to an “implicit Taylor rule†that measures the stance of conventional monetary policy and which serves as an informative instrument during times when the funds rate is constrained by the ZLB. In such a case, conventional monetary policy is exhausted so that the central bank is forced to use unconventional types of policy. We propose alternative monetary policy measures to help the economy out of the liquidity trap which take into account this assumed form of bounded rationality.
AB - In this paper we investigate the risk-related effects of monetary policy in normal times, as well as in periods where the zero lower bound (ZLB) binds, in a stylized macroeconomic model with boundedly rational beliefs. In our model, financial market participants use heuristics to assess the risk premium over the policy rate in accordance to an “implicit Taylor rule†that measures the stance of conventional monetary policy and which serves as an informative instrument during times when the funds rate is constrained by the ZLB. In such a case, conventional monetary policy is exhausted so that the central bank is forced to use unconventional types of policy. We propose alternative monetary policy measures to help the economy out of the liquidity trap which take into account this assumed form of bounded rationality.
U2 - 10.1016/j.jebo.2020.01.016
DO - 10.1016/j.jebo.2020.01.016
M3 - Article
SN - 0167-2681
VL - 171
SP - 221
EP - 233
JO - Journal of Economic Behavior and Organization
JF - Journal of Economic Behavior and Organization
ER -