سیاست پولی احتیاطی و حد پایینی صفر در نرخ های بهره اسمی

Ignoring the existence of the zero lower bound on nominal interest rates one considerably understates the value of monetary commitment in New Keynesian models. A stochastic forward-looking model with an occasionally binding lower bound, calibrated to the U.S. economy, suggests that low values for the natural rate of interest lead to sizeable output losses and deflation under discretionary monetary policy. The fall in output and deflation are much larger than in the case with policy commitment and do not show up at all if the model abstracts from the existence of the lower bound. The welfare losses of discretionary policy increase even further when inflation is partly determined by lagged inflation in the Phillips curve. These results emerge because private sector expectations and the discretionary policy response to these expectations reinforce each other and cause the lower bound to be reached much earlier than under commitment.

The relevance of the zero lower bound on nominal interest rates for the conduct of monetary policy is a much debated issue among both policymakers and academics. Clearly, the economic experience of Japan during the last decade as well as the low levels of nominal interest rates prevailing in Europe and the United States contribute to the renewed interest in this topic.1 Although deflationary pressures seem eventually to be subsiding, investigating this issue remains relevant for effectively dealing with such pressures should they reemerge. Surprisingly, however, a systematic investigation of the policy implications arising from the lower bound in stochastic models with forward-looking agents is not available yet. This paper determines optimal discretionary monetary policy in a benchmark New Keynesian model, featuring monopolistic competition and sticky prices in the product market (see Clarida et al., 1999 and Woodford, 2003), under standard conditions of uncertainty and taking explicitly into account the existence of the lower bound. Studying a fully stochastic setup with lower bound is of interest because it allows us to calibrate the model, to the U.S. economy, and study the welfare implications of discretionary monetary policy. In particular, comparing our results to those obtained under commitment in Adam and Billi (2006), we illustrate that ignoring the existence of the lower bound one may significantly understate the value of policy commitment. To facilitate comparison to the case with policy commitment we eliminate the discretionary inflation bias by assuming the existence of an appropriate output subsidy that offsets the monopoly distortion. For a purely forward-looking model, we then show that under discretionary monetary policy a fall in the ‘natural’ real rate of interest generates large output losses and a sizable amount of deflation.2 In particular, for our benchmark calibration a negative three standard deviation value of the natural real rate leads to a negative output gap of about 8% and an annual rate of deflation around 1.8%.3 The fall in both output and inflation is found to be considerably larger than in the case with policy commitment and does not show up at all if the model ignores the existence of the lower bound. In fact, under commitment the output gap is less than 2% and deflation is less than 0.1%. As a result, the unconditional welfare losses generated by discretionary policy increase markedly if the model takes into account the lower bound. For our benchmark calibration the welfare equivalent consumption losses generated by discretionary policy increase by about 65%. However, we find that depending on the precise parameterization of the model the consumption losses may easily increase by as much as 300%. The consumption losses generated by discretionary policy increase even further if we depart from our fully forward-looking specification, allowing inflation to be partly determined by lagged inflation in the Phillips curve; see Billi (2005) for the case with policy commitment. Overall, these results emerge because in a fully stochastic setup private sector expectations of future output and inflation and the discretionary policy response to these expectations reinforce each other, causing the lower bound to be reached much more often than under commitment. Compared to the case with commitment, the private sector expects larger output losses and stronger deflation once the lower bound is reached: discretionary policy cannot engage in credible promises about the conduct of future policy actions, therefore, is unable to lower real interest rates by promising future inflation.4 Since adverse shocks in the future may always cause the lower bound to be reached, private agents expect lower output and inflation even at times when nominal rates are still positive. Reduced inflationary expectations increase real interest rates and put downward pressure on actual output and inflation. This induces policy to lower nominal rates, which causes the lower bound to be reached much earlier than under commitment. This in turn justifies even lower expectations of future output and inflation and generates additional downward pressure on the actual values of these variables.5 The literature on monetary policy under discretion was initiated by the seminal contributions of Kydland and Prescott (1977) and Barro and Gordon (1983). More recently, it has been extended to fully micro-founded models in Clarida et al. (1999) and Woodford (2003).6 The relevance of the zero lower bound under discretionary policy was first noted by Krugman (1998) who emphasized that the credibility problem may generate a deflation problem. Eggertsson (2006) and Jeanne and Svensson (2004) build upon this idea and discuss potential solutions to the credibility problem. The remainder of this paper is structured as follows. Section 2 introduces the economic model and Section 3 explains how we solve it. After presenting the calibration to the U.S. economy in Section 4, we illustrate the welfare implications of discretionary policy in Section 5. To explain the welfare results, first we analytically determine the perfect foresight equilibrium in Section 6, then we present detailed results for the stochastic equilibrium in Section 7. Section 8 checks the robustness of our findings with respect to the model specification and parameterization. Section 9 briefly concludes. Analytical derivations and our numerical algorithms are described in Appendix A.

We show that taking explicitly into account the existence of the zero lower bound on nominal interest rates considerably increases the welfare costs associated with discretionary monetary policy. In particular, low values of the natural real rate of interest cause much larger output losses and stronger deflation than in the case with policy commitment. Importantly, none of these feature is appropriately accounted for by models that ignore the lower bound. In the benchmark New Keynesian model that we employ, once the lower bound is reached the inability to commit to future policy actions deprives discretionary monetary policymakers of their policy instruments. However, in practice there are several alternative policy instruments that might still be available in a situation of zero nominal interest rates, most notably fiscal policy and exchange rate policy. We plan to investigate the relevance of these other policy instruments by including them into our analysis in future work.