Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/283326 
Year of Publication: 
2021
Series/Report no.: 
Technical Paper No. 03/2021
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
Abstract: 
This paper presents selected results from a model-based assessment of the impact of unconventional monetary policies. The model is estimated on euro area data and features two types of agents, a financial sector, several real and nominal frictions as well as rational expectations. In our model simulations, we allow for multiple nonlinearities: an occasionally binding effective lower bound (ELB) on the short-term policy rate; a state-dependent and calender-based interest rate forward guidance; state-dependent asset purchases conducted only at the ELB. There are four main results. First, state-dependent forward guidance can reduce the volatility of the economy in comparison to unconditional calendar-based forward guidance. Second, the ELB induces a large negative in ation bias if the central bank has only its short-term policy rate at its disposal. Third, asset purchases that are initiated only at the ELB can provide significant in ation stabilisation, but it remains uncertain whether they allow the distortions created by the ELB to be fully off- set. This is the case, for instance, when an upper limit on purchases is imposed. Fourth, an appropriate reinvestment strategy might help to mitigate the limits of asset purchases.
Subjects: 
Effective lower bound
forward guidance
state-dependent asset purchases
reinvestment
make-up strategies
Bayesian estimation
JEL: 
D78
E31
E43
E44
E52
E58
Document Type: 
Working Paper

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