Discussion Paper

An IS-LM analysis of the zero-bound problem


Abstract: Policy options for stimulating real activity are limited once short-term interest rates have been driven to zero. Monetary policy makers face the difficult challenge of preventing or reversing declines in near-term inflation expectations while preserving confidence in the central bank's commitment to long-term price stability. Fiscal policy makers must commit to a credible plan for maintaining or raising near-term government purchases while minimizing increases in future marginal tax rates.

Keywords: Price levels; Monetary policy; Fiscal policy;

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Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Staff Papers

Publication Date: 2011

Issue: Apr

Order Number: 13