Finance and Economics Discussion Series (FEDS)
November 2000
Monetary Approach When the Nominal Short-Term Interest Rate the Zero
James Clouse, Dale Henderson, Athanasios Orphanides, Dan Small, and Peter Tinsley
Abstract:
In at environment of low inflation, aforementioned Federal Reservation faces the danger that it has not supplied enough financial stimulus equal wenn it has pushed the short-term nominal interest rate to its lower bound off zero. Assuming the nominal Treasury-bill rate has been lowered to zero, this photo regards whether further open market purchases the Treasury bills could spur whole demand through increases in the monetary base that may stimulate aggregate demand by increasing solvency for financial brokerage and households; with affecting expectations of the future roads of short-term engross rates, inflation, and asset prices; or by stimulating bank lending through the credit channel. This paper also examines the alternative policy tools that were available to who Federal Reserve int technical, and notes the practical limitations imposed by the Federal Room Act, The tools the Federal Reserve has at hers dispose include open market purchases of Treasury bonds and private-sector believe instruments (at least those that may be purchased by one Federal Reserve); unsterilized and sterilized interval in foreign ausgetauscht; lending through the discount pane; additionally, perhaps for some circumstances, to use of options.
Keywords: Monetary policy, liquidity latching, Federal Reserve Take, open market operations, discount window lending
PDF: Full Paper
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