We explore the effects of forward guidance at the zero lower bound when there is uncertainty over the lift-off date arising from: (i) the imperfect credibility of time-inconsistent forward-guidance promises; (ii) incomplete communication. We use a simple New Keynesian model to demonstrate that a...

We study the macroeconomic consequences of issuing central bank digital currency (CBDC) — a universally accessible and interest-bearing central bank liability, implemented via distributed ledgers, that competes with bank deposits as medium of exchange. In a DSGE model calibrated to match the...

This paper discusses central bank digital currency (CBDC) and its potential impact on the monetary transmission mechanism. We first offer a general definition of CBDC which should make the concept accessible to a wide range of economists and policy practitioners. We then investigate how CBDC...

This paper sets out three models of central bank digital currency (CBDC) that differ in the sectors that have access to CBDC. It studies sectoral balance sheet dynamics at the point of an initial CBDC introduction, and of an attempted large-scale run out of bank deposits into CBDC. We find that...

Since the Great Recession policy rates have been extremely low, but neither absolutely constant, nor exactly set to zero. We thus augment a standard zero lower bound model to study the effects of a stochastic lower bound (SLB) on policy rates. We find that a less predictable SLB helps keep...

In this paper, we use an estimated DSGE model of the UK economy to investigate perceptions of the effectiveness of monetary policy since the onset of the 2007–08 financial crisis in a number of measures of deflation probability — the Survey of Economic Forecasts, financial-market option...

We develop a model that can explain the evolution of trend inflation in the United States in the three decades before the Great Recession as a function of the reduction in uncertainty about the monetary policy maker's behaviour. The model features ambiguity-averse agents and ambiguity regarding...

Motivated by policies implemented by some central banks in response to the financial crisis, we use a simple New Keynesian model to study a particular form of forward guidance. We assume that the policy maker makes a state-contingent commitment to hold the policy rate at the zero lower bound...

Determinacy is ensured in the New Keynesian model when firms face imperfect common knowledge, regardless of whether the Taylor principle is satisfied. Strategic complementarity in pricing and idiosyncratic noise in firms' signals, however small, are together sufficient to eliminate...

Modifying the standard New-Keynesian model to replace firms' full information and sticky prices with flexible prices and dispersed information, and imposing mild and plausible restrictions on the monetary authority's decision rule, produces the striking results that (i) there exists a unique and...