Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152784
Authors: 
Coenen, Günter
Wieland, Volker
Year of Publication: 
2004
Series/Report no.: 
ECB Working Paper 350
Abstract: 
In this paper, we study the effectiveness of monetary policy in a severe recession and de?ation when nominal interest rates are bounded at zero. We compare two alternative proposals for ameliorating the effect of the zero bound: an exchange-rate peg and price-level targeting. We conduct this quantitative comparison in an empirical macroeconometric model of Japan, the United States and the euro area. Furthermore, we use a stylized micro-founded two-country model to check our qualitative ?ndings. We ?nd that both proposals succeed in generating in?ationary expectations and work almost equally well under full credibility of monetary policy. However, price-level targeting may be less effective under imperfect credibility, because the announced price-level target path is not directly observable.
Subjects: 
Exchange Rates
liquidity trap
monetary policy rules
nominal rigidities
Zero-interest-rate bound
JEL: 
E31
E52
E58
E61
Document Type: 
Working Paper

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