Liquidity traps occur when the natural nominal interest rate becomes negative. In a model with capital price dynamics explicitly considered, we find that shocks in the future can cause current and lasting liquidity traps. We propose that the central bank can prevent or fix liquidity traps by...

Modern monetary policy analysis is built around the concept of an interest rate rule that responds to both inflation and output. This paper evaluates the quantitative implications of having a policy rule target different definitions of the output gap in a New Keynesian model with endogenous...

This paper reassesses the long-run relation between nominal interest rates and inflation using German data. It shows that the empirical rejection of the strict Fisher effect in previous studies, i.e., the finding of interest rates not fully adjusting to changes in inflation, can be attributed to...

In this paper, I use a structural VAR model and the Kalman filter to estimate the natural rate of interest (NRI) in Poland. I show how the NRI can yield important information for a central banker. First, estimation of the NRI can be helpful for monetary authorities, seeking to stabilize...

For the successful conduct of monetary policy the central bank needs reliable indicators of the monetary policy stance. A recently often advocated one is the gap between the real, market and the natural rate of interest. In this article we estimate the historical time series of the natural rate...

We examine the transmission process of the policy rate to the lending and deposit rates in Greece for the period 1996-2004 within bivariate cointegration and error correction framework. A significant structural break takes place with the accession of Greece into EMU in 2001. The bank rates...

This paper studies the role of collateral constraints in transforming small monetary shocks into large persistent output fluctuations. We do this by introducing money in the heterogeneous-agent real economy of Kiyotaki and Moore (1997). Money enters in a cash-in-advance constraint and is...

Monetary policy has an important role in the determination of the inflation rate and the output gap time trajectories. Monetary authorities should choose the nominal interest rate time path that best serves the goals of price stability (primarily) and output growth (as a consequence of the...

This paper investigates the degree and nature of economic and monetary policy relations among the United States, the euro area, and the British area. Using daily interest rates, we estimate the impact of monetary policy announcements of a Central Bank on its domestic market and in what measure...

Discount rate changes always receive considerable attention in financial markets. Two hypotheses compete to explain financial market reactions: the direct ‘borrowing cost effect’ and the announcement effect. This paper examines the issue for the Bundesbank’s discount rate changes after...