NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Global Effective Lower Bound and Unconventional Monetary Policy

Jing Cynthia Wu, Ji Zhang

NBER Working Paper No. 24714
Issued in June 2018, Revised in April 2019
NBER Program(s):Economic Fluctuations and Growth, International Trade and Investment, Monetary Economics

In a standard open-economy New Keynesian model, the effective lower bound causes anomalies: output and terms of trade respond to a supply shock in the opposite direction compared to normal times. We introduce a tractable framework to accommodate for unconventional monetary policy. In our model, these anomalies disappear. We allow unconventional policy to be partially active and asymmetric between countries. Empirically, we find the US, Euro area, and UK have implemented a considerable amount of unconventional monetary policy: the US follows the historical Taylor rule, whereas the others have done less compared to normal times.

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Document Object Identifier (DOI): 10.3386/w24714

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