Open AccessRedefining monetary policy rules: A threshold approach
Author(s) -
Carmen DíazRoldán,
Montserrat Prats,
María del Carmen Ramos-Herrera
Publication year - 2021
Publication title -
plos one
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.99
H-Index - 332
ISSN - 1932-6203
DOI - 10.1371/journal.pone.0252316
Subject(s) - output gap , constraint (computer aided design) , economics , inflation (cosmology) , monetary policy , interest rate , real interest rate , key (lock) , value (mathematics) , nominal interest rate , zero (linguistics) , monetary economics , zero lower bound , econometrics , mathematics , computer science , physics , statistics , theoretical physics , linguistics , geometry , computer security , philosophy
In this paper, we try to analyse the extent to which a redefinition of the monetary policy rule would help to avoid the zero-lower bound, as well as to explore the conditions needed to avoid that constraint. To that aim, we estimate the threshold values of the key variables of the policy rule: the inflation gap and the output gap. The threshold model allows us to know which are the turning points from which the relationship between the key variables and the interest rate revert. In the Eurozone countries, we have found that the inflation gap always contributes to increasing the nominal interest rate. On the contrary, the output gap works differently when it reaches values above or below the threshold value, which would favour the reduction of the interest rates towards the zero level.