Time Consistency and the Duration of Government Debt: A Signalling Theory of Quantitative Easing
NBER Working Paper No. 21336
We present a signalling theory of Quantitative Easing (QE) at the zero lower bound on the short term nominal interest rate. QE is effective because it generates a credible signal of low future real interest rates in a time consistent equilibrium. We show these results in two models. One has coordinated monetary and fiscal policy. The other an independent central bank with balance sheet concerns. Numerical experiments show that the signalling effect can be substantial in both models.
You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.
Document Object Identifier (DOI): 10.3386/w21336
Users who downloaded this paper also downloaded* these: