Monetary policy space remains constrained by the lower bound in many countries, limitingthe policy options available to address future deflationary shocks. The existence of cashprevents central banks from cutting interest rates much below zero. In this paper, we considerthe practical feasibility...

The paper models an adjustable peg exchange rate arrangement as a policy rule with an escape clause under which the timing and magnitudes of realignments are the outcomes of policy optimization decisions. Under the assumptions that market participants are rational, risk averse, and fully...

This paper estimates a standard Dynamic Stochastic General Equilibrium (DSGE) model that includes a wage and price Phillip's curves with different expectation formation processes for Brazil and the USA. Other than the standard rational expectation process, we also use a limited rationality...

After more than six years of ultra-low interest rates, a Fed liftoff (rate hike) is just a matter of time. This paper goes back to history to understand the spillover effect - or what is termed in the paper as the ‘liftoff' effect - of the previous five Fed liftoffs on capital flows. Using a...

After 2007, countries that cut their policy interest rates close to zero turned, amongother policies, to forward guidance. We estimate a two-country model of the U.S. andCanada to quantify how unexpected changes in U.S. forward guidance affected Canada.Expansionary U.S. forward guidance shocks,...

In this paper, we investigate how negative interest rate policy (NIRP) introduced in January2016 by the Bank of Japan (BoJ) affected Japanese banks' lending and risk taking behavior.The BoJ's announcement was an unexpected surprise to the market and was followed by asharp drop in equity prices...

In this paper, we provide compelling evidence that cyclical factors account for the bulk of thepost-2007 decline in the U.S. labor force participation rate. We then proceed to formulate astylized New Keynesian model in which labor force participation is essentially acyclical during“normal...

Based on the experience of the Bank of Albania, the paper proposes a framework toestimate the interest rate lower bound in small, open, and euroized economies. The paperintroduces a stylized monitoring tool to assess the unintended consequences of low policyrates. The paper is the first attempt...

There has been much discussion about eliminating the 'zero lower bound' by eliminating paper currency. But such a radical and difficult approach as eliminating paper currency is not necessary. Much as during the Great Depression-when countries were able to revive their economies by going off the...