Even when the policy rate is currently not constrained by its effective lower bound (ELB), the possibility that the policy rate will become constrained in the future lowers today's inflation by creating tail risk in future inflation and thus reducing expected inflation. In an empirically rich...

Bernanke's strategies for integrating forward guidance into conventional instrument rules anticipate that effective lower bound (ELB) episodes may become part a regular occurrence and that monetary policy should recognize this likelihood (Bernanke (2017a); Bernanke (2017b)). Bernanke's first...

When choosing a strategy for monetary policy, policymakers must grapple with mismeasurement of labor market slack, and of the responsiveness of price inflation to that slack. Using stochastic simulations of a small-scale version of the Federal Reserve Board’s principal New Keynesian...

Considerable attention has been devoted to evaluating the macroeconomic effectiveness of the Federal Reserve's communications about future policy rates (forward guidance) in light of the U.S. economy's long spell at the zero lower bound (ZLB). In this paper, we study whether forward guidance...

Modifying the objective function of a discretionary central bank to include an interest-rate smoothing objective increases the welfare of an economy in which large contractionary shocks occasionally force the central bank to lower the policy rate to its effective lower bound. The central bank...

In expectations-driven liquidity traps, a higher inflation target is associated with lower inflation and consumption. As a result, introducing the possibility of expectations-driven liquidity traps to an otherwise standard model lowers the optimal inflation target. Using a calibrated New...

We analyze credible forward guidance policies in a sticky-price model with an effective lower bound (ELB) constraint on nominal interest rates by solving a series of optimal sustainable policy problems indexed by the duration of reputational loss. Lower-for-longer policies --- while effective in...