Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/162791
Authors: 
Gerke, Rafael
Giesen, Sebastian
Kienzler, Daniel
Tenhofen, Jörn
Year of Publication: 
2017
Series/Report no.: 
Discussion Paper, Deutsche Bundesbank 21/2017
Abstract: 
We analyze the macroeconomic implications of a transient interest-rate peg in combination with a QE program in a non-linear medium-scale DSGE model. In this context, we re-examine what has become known as the reversal puzzle (Carlstrom, Fuerst and Paustian, 2015) and provide an analytical explanation for its appearance. We show that the puzzle is intimately related with agents' expectations. If, for instance, agents do not anticipate the peg, the reversal does not appear. The same is true if agents' inflation expectations are influenced by a monetary authority which follows a price-level-targeting rule instead of a standard Taylor rule. In this case, sign reversals do not occur even for very long durations of pegged nominal interest rates.
Subjects: 
Unconventional Monetary Policy
Interest-Rate Peg
Perfect Foresight
Reversal Puzzle
Price-Level Targeting
JEL: 
E32
E44
E52
E61
ISBN: 
978-3-95729-381-7
Document Type: 
Working Paper

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