Hitting inflation targets may be harder now, thanks to lower bound – paper
Paper warns of potential for lower bound episodes to affect expectations of when they will occur in future
Achieving inflation targets may be more difficult now than before the crisis, a working paper published by the European Central Bank has warned.
In The risky steady state and the interest rate lower bound, Timothy Hills, Taisuke Nakata and Sebastian Schmidt say recent experience with the lower bound could make the private sector think similar episodes are more likely in the future.
"The possibility that the policy rate will become constrained by the [effective lower bound] in the future lowers
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