Learn Before
The Floor on Policy Interest Rates
Explain why a central bank's main policy interest rate is effectively constrained from falling below zero, and analyze the primary challenge this constraint creates for economic management during a severe downturn.
0
1
Tags
Economics
Economy
Introduction to Macroeconomics Course
Ch.4 Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
Science
Ch.5 Macroeconomic policy: Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
Ch.6 The financial sector: Debt, money, and financial markets - The Economy 2.0 Macroeconomics @ CORE Econ
Analysis in Bloom's Taxonomy
Cognitive Psychology
Psychology
Related
Asymmetry in Monetary Policy Effectiveness Against Inflation vs. Deflation
The Need for Negative Real Interest Rates in a Deep Recession
Argument for Raising Inflation Targets to Mitigate ZLB Risks
A central bank is attempting to combat a severe recession by setting its nominal policy interest rate to -0.5%. Which of the following best explains why this policy is likely to be ineffective at stimulating the economy?
Monetary Policy Limitations in a Downturn
If an economy is experiencing a 2% annual rate of deflation (a sustained fall in the general price level), a central bank's policy of setting the nominal interest rate to 0% will successfully create a negative real interest rate to stimulate spending.
The Real Interest Rate Floor at the Zero Lower Bound
Insufficiency of Conventional Monetary Policy After the 2007-2009 Crisis