Talk:Zero interest-rate policy

Untitled
Krugman does not deserve credit for this idea. I am astounded that he can be attributed with this.


 * Yes, this has nothing to do with Krugman, and the thesis that such economies are in a liquidity trap was noted by Keynes in 1936, and has been noted repeatedly since then. What to do when you've already lowered the interest rates as low as they can go, but it still seems like you should lower tham further (the "0% bound") is a topic that has come up numerous times in Keynsian economics dating back to Keynes himself, with dozens of different analyses coming to different conclusions about what can be done and how effective doing it will be. --Delirium 09:42, May 9, 2005 (UTC)

Well, if Krugman doesn't deserve the credit, then someone should edit the Paul Krugman page, since he is described as the "main architect" of the ZIRP there.

My sense was that Krugman advocated a specific method for increasing the money supply. Since the central bank couldn't get commercial banks to lend even with interest rates at 0%, Krugman advocated that they expand the money supply by buying up forex with yen. This would increase the supply of yen in circulation, expand MS, and potentially generate some inflation. Asacarny 19:51, 18 April 2006 (UTC)

Why does "zero inflation" redirect here?
Wonderstruck 17:39, 26 March 2007 (UTC)
 * Fixed —Preceding unsigned comment added by 82.35.68.162 (talk) 10:59, 23 August 2008 (UTC)

This Article Has Some Problems
to say the least - it's garbage

This article has a host of problems.

(i) Zero nominal interest rates do not necessarily imply low growth, it just usually is the case.

(ii) "Many economists believe that monetary policy becomes ineffective under ZIRP ..."

I don't know of any economist who believes that. There are a variety of ways for monetary policy to be effective at the ZIRP - because you can still effect expectations about future inflation. You can commit to zero interest rates beyond the period of deflationary pressure with a higher inflation target, pushing up inflation expectations. You can depreciate your currency (at least if you are relatively small, open economy like Japan). You can do money-financed transfers. You can do quantitative easing and buy up long-term government bonds, corporate bonds, commercial paper, asset-backed securities etc. If you are struggling due to a commitment / time inconsistency problem you can utilize Svensson's foolproof way to escape by developing a price-level target path, a devaluation of the currency, and a temporary exchange rate peg, which is later abandoned in favor of inflation-targeting once the price-level target has reached.

All four of those methods are highly effective at escaping a liquidity trap. No economist I know of seriously believes the zero lower bound prevents monetary policy from doing anything.

(iii) "Some economists argue that, when monetary policy hits the lower bound of the ZIRP, governments must use fiscal policy"

I don't know any economist that says you must use fiscal policy. Most fiscal stimulus supporters will admit they believe that monetary policy will be sufficient if done correctly. Fiscal policy can supplement, however.

(iv) "A real-world counter example to this theory is Japan."

Wrong. The New Keynesian framework will tell you that the way fiscal stimulus was done in Japan would not work. The specific assumptions used in the paper by people like Eggertsson, Woodford, Christiano etc would imply Japan's fiscal stimulus would NOT be effective. Their framework predicts EXACTLY what happened in Japan. Fiscal stimulus works by pushing up inflation expectations because of the increase in government debt creates an incentive for the monetary authority to create inflation. As Gauti Eggertsson addressed a few years ago if the monetary authority and the fiscal authority are not coordinated, the deficit spending multiplier goes from above 2, to precisely 0. There is no question that Japan's monetary authority continually ran contractionary policy (yes, policy can still be contractionary at 0 interest rates). Furthermore, it's clear that the Bank of Japan wouldn't respond to fiscal pressure in attempts to push up inflation expectations and so the deficit spending multiplier would be zero. Japan does not offer a refutation of the arguments put forth by Woodford, the Japan experience is consistent with Woodford's model.

Also, to the commentators above me. Paul Krugman played an important role in the late 1990s in stimulating the discussion of how to escape a liquidity trap by committing to a higher inflation target. He didn't discover the liquidity trap (and he actually proved that the liquidity trap wasn't really a trap), but he explained how to escape it by targeting higher inflation (and his work was subsequently addressed in much fancier New Keynesian DSGE models).

I'm going to change these problems assuming there are no objections.

Merger proposal
I propose that zero lower bound problem be merged into this article. Zero interest rate policy is what happens at the zero lower bound, so they are very closely related and should be discussed together.greenrd (talk) 21:32, 21 August 2013 (UTC)


 * I agree, but what should be the merged article's name? --bender235 (talk) 12:32, 22 August 2013 (UTC)
 * Zero interest-rate policy. That's my proposal, anyway.--greenrd (talk) 11:36, 23 August 2013 (UTC)
 * I'm not sure what the protocol is for something like this, but the merger makes sense to me. It also makes sense to keep the title of "Zero interest-rate policy" and just include a section for "zero lower bound problem".--Error9900 (talk) 16:34, 26 August 2013 (UTC)

Tone warning
The usual gripe is that whoever put the "tone" tag did not put any reason on this page about why they took the action. So, let's ask for it. I would argue that the cons far outweigh the pros from a historic sense as stated (more or less) in the list albeit the phrasing may be improved a little. The fact is that we do not know the ultimate consequences of the current state (except, from my experiences of the deal, both from an economic sense and from that of an American citizen, the effects stink), nor is there any clear way for the Fed to move having boxed itself into a corner. Unwinding (how I characterize the thing) ought to have happened long ago. Now, we have all the world's central bankers mimicing the Washington crowd (what say you? rush to the lowest level?). jmswtlk (talk) 23:05, 11 February 2015 (UTC)

That's why I have removed this section. As an economist it makes no sense and all of the points were subjective claims. If someone wants it back it needs citations. 67.186.242.194 (talk) 13:40, 20 August 2015 (UTC)

Negative interest rates
Since both Switzerland and Portugal have imposed negative interest rates, I think this statement is inaccurate: "The ZIRP is an important milestone in monetary policy because the central bank is no longer able to reduce nominal interest rates" — Preceding unsigned comment added by 173.9.217.237 (talk) 21:57, 31 July 2015 (UTC)

India Education Program course assignment
This article was the subject of an educational assignment supported by Wikipedia Ambassadors through the India Education Program.

The above message was substituted from by PrimeBOT (talk) on 19:55, 1 February 2023 (UTC)