Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/209958 
Year of Publication: 
2010
Series/Report no.: 
Working Paper No. 2010/13
Publisher: 
Norges Bank, Oslo
Abstract: 
With sticky prices, optimizing agents and money in the utility function, I derive the exact analytical solution for optimal monetary policy given a zero lower bound (ZLB) on the interest rate. The Phillips curve is Neo-Classical, and the ZLB is then not a constraint on optimal policy. Optimal policy is history dependent even without a commitment problem and implements a Friedman rule equilibrium. The role of forward guidance in policy is more limited than under a New-Keynesian Phillips curve. The optimal policy rule intercept term is time varying and depends on the variance of the natural real rate.
Subjects: 
zero lower bound on interest rates
monetary policy
JEL: 
E31
E52
E61
Persistent Identifier of the first edition: 
ISBN: 
978-82-7553-563-2
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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