Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/208254
Authors: 
Nakata, Taisuke
Ogaki, Ryota
Schmidt, Sebastian
Yoo, Paul
Year of Publication: 
2019
Series/Report no.: 
ECB Working Paper 2220
Abstract: 
We examine the implications of less powerful forward guidance for optimal policy using a sticky-price model with an effective lower bound (ELB) on nominal interest rates as well as a discounted Euler equation and Phillips curve. When the private-sector agents discount future economic conditions more in making their decisions today, an announced cut in future interest rates becomes less effective in stimulating current economic activity. While the implication of such discounting for optimal policy depends on its degree, we find that, under a wide range of plausible degrees of discounting, it is optimal for the central bank to compensate for the reduced effect of a future rate cut by keeping the policy rate at the ELB for longer.
Subjects: 
Forward Guidance
Optimal Policy
Discounted Euler Equation
Discounted Phillips Curve
Effective Lower Bound
JEL: 
E52
E58
E61
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-3482-4
Document Type: 
Working Paper

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