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Author:Nakata, Taisuke 

Working Paper
Conservatism and Liquidity Traps

Appointing Rogoff's (1985) conservative central banker improves welfare if the economy is subject to large contractionary shocks and the policy rate occasionally falls to the zero lower bound (ZLB). In an economy with occasionally binding ZLB constraints, the anticipation of future ZLB episodes creates a trade-off between inflation and output stabilization. As a consequence, inflation systematically falls below target even when the policy rate is above zero. A conservative central banker mitigates this deflationary bias away from the ZLB, improving allocations both at and away from the ZLB ...
Finance and Economics Discussion Series , Paper 2014-105

Discussion Paper
Model-Based Measures of ELB Risk

The target range for the federal funds rate has increased a few times since its liftoff from the effective lower bound (ELB) in December 2015 and currently stands at 1 to 1-1/4 percent. According to standard macroeconomic models, ELB risk--how likely it is for the policy rate to be constrained by the ELB in the near- and medium-term future--has important implications for interest rate policy. In this note, I construct measures of ELB risk by combining survey-based projections of the U.S. economy with stochastic simulations of the FRB/US model, a large-scale model of the US economy maintained ...
FEDS Notes , Paper 2017-08-23

Discussion Paper
The Risk of Returning to the Effective Lower Bound: An Implication for Inflation Dynamics After Lift-Off

In this note, we analyze an implication of the effective lower bound (ELB) risk--the possibility that adverse shocks will force policymakers in the future to lower the policy rate to the ELB--on inflation dynamics after liftoff.
FEDS Notes , Paper 2016-02-12-2

Working Paper
Fiscal Multipliers at the Zero Lower Bound: The Role of Policy Inertia

The presence of the lagged shadow policy rate in the interest rate feedback rule reduces the government spending multiplier nontrivially when the policy rate is constrained at the zero lower bound (ZLB). In the economy with policy inertia, increased inflation and output due to higher government spending during a recession speed up the return of the policy rate to the steady state after the recession ends. This in turn dampens the expansionary effects of the government spending during the recession via expectations. In our baseline calibration, the output multiplier at the ZLB is 2.5 when the ...
Finance and Economics Discussion Series , Paper 2014-107

Working Paper
Strengthening the FOMC’s Framework in View of the Effective Lower Bound and Some Considerations Related to Time-Inconsistent Strategies

We analyze the framework for monetary policy in view of the effective lower bound (ELB). We find that the ELB is likely to bind in most future recessions and propose some ways that theoretical models imply that the framework could be strengthened. We also discuss ways that commitment strategies, which are not part of the framework, may improve economic outcomes. These policies can suffer from a time-inconsistency problem, which we analyze.
Finance and Economics Discussion Series , Paper 2020-067

Working Paper
The Risk-Adjusted Monetary Policy Rule

Macroeconomists are increasingly using nonlinear models to account for the effects of risk in the analysis of business cycles. In the monetary business cycle models widely used at central banks, an explicit recognition of risk generates a wedge between the inflation-target parameter in the monetary policy rule and the risky steady state (RSS) of inflation---the rate to which inflation will eventually converge---which can be undesirable in some practical applications. We propose a simple modification to the standard monetary policy rule to eliminate the wedge. In the proposed risk-adjusted ...
Finance and Economics Discussion Series , Paper 2016-061

Working Paper
Equilibrium Yield Curves and the Interest Rate Lower Bound

We study the term structure of default-free interest rates in a sticky-price model with an occasionally binding effective lower bound (ELB) constraint on interest rates and recursive preferences. The ELB constraint induces state-dependency in the dynamics of term premiums by affecting macroeconomic uncertainty and interest-rate sensitivity to economic activities. In a model calibrated to match key features of the aggregate economy and term structure dynamics in the U.S. above and at the ELB, we find that the ELB constraint typically lowers the absolute size of term premiums at the ELB and ...
Finance and Economics Discussion Series , Paper 2016-085

Discussion Paper
Credibility of Optimal Forward Guidance at the Interest Rate Lower Bound

Market participants and other analysts generally expect that the federal funds rate will rise from its effective lower bound (ELB) later this year. However, the ELB could again become a binding constraint on monetary policy in the future.
FEDS Notes , Paper 2015-08-27

Working Paper
Monetary Policy Options at the Effective Lower Bound : Assessing the Federal Reserve's Current Policy Toolkit

We simulate the FRB/US model and a number of statistical models to quantify some of the risks stemming from the effective lower bound (ELB) on the federal funds rate and to assess the efficacy of adjustments to the federal funds rate target, balance sheet policies, and forward guidance to provide monetary policy accommodation in the event of a recession. Over the next decade, our simulations imply a roughly 20 to 50 percent probability that the federal funds rate will be constrained by the ELB at some point. We also find that forward guidance and balance sheet polices of the kinds used in ...
Finance and Economics Discussion Series , Paper 2019-003

Working Paper
Uncertainty at the zero lower bound

This paper examines how the presence of uncertainty alters allocations and prices when the nominal interest rate is constrained by the zero lower bound. I conduct the analysis using a standard New Keynesian model in which the nominal interest rate is determined according to a truncated Taylor rule. I find that an increase in the variance of shocks to the discount factor process reduces consumption, inflation, and output by a substantially larger amount when the zero lower bound is binding than when it is not. Due to the zero lower bound constraint, policy functions for the real interest rates ...
Finance and Economics Discussion Series , Paper 2013-09

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