Working Paper: CEPR ID: DP11117
Authors: Tilman Bletzinger; Volker Wieland
Abstract: A number of contributions to research on monetary policy have suggested that policy should be asymmetric near the lower bound on nominal interest rates. As inflation and economic activity decline, policy should ease more aggressively than it would in the absence of the lower bound. As activity recovers and inflation picks up, the central bank should act to keep interest rates lower for longer than without the bound. In this note, we investigate to what extent the policy easing implemented by the ECB since summer 2013 mirrors the rate recommendations of a simple policy rule or deviates from it in a way that indicates a “lower for longer” approach to policy near zero interest rates.
Keywords: monetary policy; interest rates; European Central Bank; forward guidance; zero bound
JEL Codes: E43; E47; E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ECB interest rate decisions (E52) | interest rates below the prescriptions of the Taylor rule (E43) |
| inflation and output forecasts (E31) | ECB interest rate decisions (E52) |
| ECB's unconventional measures (E52) | decline in market interest rates (E43) |
| inflation and growth forecasts (E31) | ECB interest rate decisions (E52) |