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      • Department of Economics
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      Information value of the interest rate and the zero lower bound

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      Author(s)
      Lee, Sang Seok
      Date
      2020
      Source Title
      Macroeconomic Dynamics
      Print ISSN
      1365-1005
      Publisher
      Cambridge University Press
      Volume
      24
      Issue
      7
      Pages
      1758 - 1784
      Language
      English
      Type
      Article
      Item Usage Stats
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      Abstract
      Why is a zero lower bound episode long-lasting and disruptive? This paper proposes the interruption of information flow from the central bank’s interest rate decision to the private sector as a channel by which the destabilizing effect of the zero lower bound constraint on the nominal interest rate is amplified. This mechanism is incorporated into the new Keynesian model by modifying its information structure. This paper shows that the information loss at the zero lower bound can increase (a) the duration of the zero lower bound episodes and (b) the size of deflation and output gap loss. The result in this paper demonstrates that enhanced information sharing by the central bank about the state of the economy can be effective at alleviating the cost of the zero lower bound.
      Keywords
      Interest rate zero lower bound
      Asymmetric information
      Forward guidance
      Central Bank transparency
      Permalink
      http://hdl.handle.net/11693/53200
      Published Version (Please cite this version)
      https://dx.doi.org/10.1017/S1365100518001037
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      • Department of Economics 697
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