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https://nuxeo-ppd.univ-paris1.fr/nuxeo/site/esupversions/bc3b41b9-ca88-45d6-9076-1aed51d67740 ; This paper addresses recent developments in monetary policy theory in the context of a binding Zero Lower Bound and discusses the possible evolution of monetary policy after the Great Recession. We start from Olivier Blanchard's suggestion that a higher inflation target and correspondingly higher interest rates would offer larger wiggle room for Central Banks to stimulate the economy through monetary easing without hitting the ZLB and might thus prove to be a desirable policy. Using a New-Keynesian DSGE framework and including positive steady state inflation, we investigate if having a higher permanent inflation target would improve welfare and find that this is unlikely. Furthermore, we address the possibility of having temporary higher inflation targets and the effect this could have on economic fundamentals. Finally, we discuss whether simple inflation targeting suffices or if monetary policy might evolve in the aftermath of the crisis towards including several objectives and/or instruments, so as to better respond to future economic downturns.

Using a rich data set on government spending forecasts in Japan, we provide new evidence on the effects of unexpected changes in government spending when the nominal interest rate is near the zero lower bound (ZLB). The on-impact output multiplier is 1.5 in the ZLB period, and 0.6 outside of it. We estimate that government spending shocks increase both private consumption and investment during the ZLB period but crowd them out in the normal period. There is evidence that expected inflation increases by more in the ZLB period than in the normal period.

This paper explicitly models strategic interaction between two independent national fiscal authorities and a single central bank in a simple New Keynesian model of a monetary union. Monetary policy is constrained by the zero lower bound on nominal interest rates. Coordination of fiscal policies does not always lead to the best welfare effects. It depends on the nature of the shocks whether governments prefer to coordinate or not coordinate. The size of the government multipliers depend on the combination of the intraunion competitiveness parameters. They get larger in case of implementation lags of fiscal policy.

Both interest rates and inflation rates in the Euro area have reached levels dangerously close to zero. By the strategy of quantitative easing the ECB has been providing ample liquidity – yet without lasting success. Several asymmetries in policy transmission and monetary policy making have been acknowledged when interest rates hit the zero bound. This paper starts with a short review of these asymmetries. Afterwards it turns to the issues of credibility and commitment. It is argued that the inflation forecasts of the ECB are central for the communication strategy. In the current situation they should signal the willingness to stick to low interest rates. Yet the ECB is shown to be rather more optimistic than other forecasters when the prevailing threats of deflation are concerned

The purpose of this paper is to analyse whether fiscal policies can alleviate the effects of the zero lower bound (ZLB) on interest rates and if they should be coordinated internationally. The analysis is carried out using EAGLE, a DSGE model of the global economy. We consider that the fiscal shocks are temporary and that fiscal policy retains full credibility at all times. In this setup we find significant non-linearities in a ZLB situation that amplify the effects of fiscal shocks compared to the non-ZLB case. International coordination is helpful but does not play a major role in the results.