How can the central bank credibly implement a ``lower-for-longer'' strategy? To answer this question, we analyze a series of optimal sustainable policy problems---indexed by the duration of reputational loss---in a sticky-price model with an effective lower bound (ELB) constraint on nominal...

We study zero interest-rate policy in response to a large negative demand shock when long-run expectations can fall over time. Because falling expectations make monetary policy less effective by raising real interest rates, the optimal forward guidance policy makes large front-loaded promises to...