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Macroeconomic Policy after the Crash pp 11–53Cite as

Palgrave Macmillan

The Lower Bound: To Zero and Beyond

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Abstract

The story of monetary policy during the financial crisis is one of experimentation with unconventional tools and unexpected macroeconomic developments. We begin with the conventional tool of monetary policy and the tale of official interest rates. It is often said central banks hit the zero lower bound (ZLB) on official interest rates during the crisis and were then forced to turn to those unconventional tools to continue injecting stimulus into the economy. However, the story is a little more complicated than that: in practice, some central banks stopped cutting the policy rate above zero (and started doing something else) whilst others managed to eventually push through zero into negative rate territory. This section explains what happened where and why. But before we turn to explain the unconventional conduct of monetary policy during the crisis—the experimentation with negative interest rates, asset purchases and forward guidance—we will first recap the conduct of conventional monetary policy: how central banks set interest rates, and how changes in the stance of monetary policy influence activity and inflation.

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Authors and Affiliations

  1. BNP Paribas Investment Partners, Dartford, UK

    Richard Barwell

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  1. Richard Barwell
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Barwell, R. (2016). The Lower Bound: To Zero and Beyond. In: Macroeconomic Policy after the Crash . Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-51592-6_2

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  • DOI: https://doi.org/10.1057/978-1-137-51592-6_2

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  • Print ISBN: 978-1-137-51591-9

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