Authors: Thomas M. Mertens and John C. Williams
-
-
The New York Innovation Center bridges the worlds of finance, technology, and innovation and generates insights into high-value central bank-related opportunities.
Do you have a request for information and records? Learn how to submit it.
Learn about the history of the New York Fed and central banking in the United States through articles, speeches, photos and video.
-
-
-
The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
Need to file a report with the New York Fed? Here are all of the forms, instructions and other information related to regulatory and statistical reporting in one spot.
The New York Fed works to protect consumers as well as provides information and resources on how to avoid and report specific scams.
-
-
-
The New York Innovation Center bridges the worlds of finance, technology, and innovation and generates insights into high-value central bank-related opportunities.
The growing role of nonbank financial institutions, or NBFIs, in U.S. financial markets is a transformational trend with implications for monetary policy and financial stability.
The New York Fed offers the Central Banking Seminar and several specialized courses for central bankers and financial supervisors.
-
-
-
The Economic Inequality & Equitable Growth hub is a collection of research, analysis and convenings to help better understand economic inequality.
The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
-
Staff Reports
Tying Down the Anchor: Monetary Policy Rules and the Lower Bound on Interest Rates
Number 887
May 2019 Revised August 2019
May 2019 Revised August 2019
JEL classification: E52
This paper uses a standard New Keynesian model to analyze the effects and implementation of various monetary policy frameworks in the presence of a low natural rate of interest and a lower bound on interest rates. Under a standard inflation-targeting approach, inflation expectations will be anchored at a level below the inflation target, which in turn exacerbates the deleterious effects of the lower bound on the economy. Two key themes emerge from our analysis. First, the central bank can eliminate this problem of a downward bias in inflation expectations by following an average-inflation targeting framework that aims for above-target inflation during periods when policy is unconstrained. Second, dynamic strategies that raise inflation expectations by keeping interest rates “lower for longer” after periods of low inflation can both anchor expectations at the target level and further reduce the effects of the lower bound on the economy.
Author Disclosure Statement(s)
Thomas M. Mertens
I declare that I have no relevant or material financial interests that relate to the research described in the paper "Tying Down the Anchor: Monetary Policy Rules and the Lower Bound on Interest Rates."
John C. Williams
I declare that I have no relevant or material financial interests that relate to the research described in the paper "Tying Down the Anchor: Monetary Policy Rules and the Lower Bound on Interest Rates."
I declare that I have no relevant or material financial interests that relate to the research described in the paper "Tying Down the Anchor: Monetary Policy Rules and the Lower Bound on Interest Rates."
John C. Williams
I declare that I have no relevant or material financial interests that relate to the research described in the paper "Tying Down the Anchor: Monetary Policy Rules and the Lower Bound on Interest Rates."
By continuing to use our site, you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement. 
