Core Macroeconomics, Hilary Term 2017

Week 3: Monetary policy at the zero lower bound

This week we follow the lectures in further exploring monetary policy, particularly in the context where the zero lower bound on nominal interest rates becomes a binding constraint, as during the financial crisis and Great Recession.

Readings

C&S Ch. 13

Joyce, M, M. Tong and R. Woods, "The United Kingdom's quantitative easing policy: design, operation and impact," Bank of England Quarterly Bulletin, no. 3, 2011.

"Liquidity Trap" and "Quantitative Easing" entries, New Palgrave Dictionary of Economics, which can be accessed on-line from within the Oxford network, or via the library's website.

Assignment

Please write an essay on one of the following topics.

1. Discuss possible justifications for central banks adopting a policy of quantitative easing. Should such a policy measure be deployed only when interest rates are at the zero lower bound, or should it also be used when interest rates are unconstrained?

2. What is secular stagnation and how could it affect the use of monetary policy to stabilise the economy?

The readings given above a starting point for Essay 1. A starting point: please do not just submit a recapitulation of what C&S say and expect me to be enthused.

I am quite interested in (though not very knowledgeable about) the topic of Essay 2. For this one, a good start might be the on-line contributions of some of the proponents of the secular stagnation approach, such as Larry Summers (star economist, ex- chief economist of the World Bank, ex- Secretary of the Treasury in the US, ex- president of Harvard): you will find a number of pieces on his website larrysummers.com.