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Title: Forward guidance and "lower for longer": The case of the ECB

Author(s): Tilman Bletzinger and Volker Wieland

Publication Date: February 2016

Keyword(s): European Central Bank, forward guidance, interest rates, Monetary policy and zero bound

Programme Area(s): Monetary Economics and Fluctuations

Abstract: A number of contributions to research on monetary policy have suggested that policy should be asymmetric near the lower bound on nominal interest rates. As inflation and economic activity decline, policy should ease more aggressively than it would in the absence of the lower bound. As activity recovers and inflation picks up, the central bank should act to keep interest rates lower for longer than without the bound. In this note, we investigate to what extent the policy easing implemented by the ECB since summer 2013 mirrors the rate recommendations of a simple policy rule or deviates from it in a way that indicates a "lower for longer"? approach to policy near zero interest rates.

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Bibliographic Reference

Bletzinger, T and Wieland, V. 2016. 'Forward guidance and "lower for longer": The case of the ECB'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11117