Laurence Ball, Joseph Gagnon, Patrick Honohan, Signe Krogstrup

The latest Geneva Report on the World Economy argues that central banks can do more to stimulate economies and restore full employment when nominal interest rates are near zero. Quantitative easing and negative interest rates have had beneficial effects so far and can be used more aggressively, and the lower bound constraint can be mitigated by modestly raising inflation targets.

Executive Summary

1 Introduction and summary

2 The dangers of the lower bound

2.1 A look at recent history

2.2 When will the constraint bind? A simple exercise

2.3 Dynamic simulations

3 How to ease monetary policy when rates hit zero

3.1 Negative interest rates

3.2 Quantitative easing

3.3 Helicopter money

3.4 Forward guidance

3.5 Beyond forward guidance: Committing to higher future inflation

3.6 Policy mix, interactions and financial stability

4 Raising the inflation target

4.1 Benefits of raising the inflation target

4.2 Costs of a higher inflation target

4.3 Credibility and the inflation target

4.4 How to implement a new target

4.5 What about a price level target?

5 Monetary policy in a post-cash economy

5.1 Markets are driving payments systems away from cash

5.2 Monetary policy without cash

5.3 Other policy aspects of post-cash economies

6 Conclusions: So what should be done?

Discussions

