Core Macroeconomics, Hilary Term 2015

Week 4: 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.

Rational expectations, the "microfoundations" of sticky price models, and the New Keynesian Phillips Curve are covered in lecture and could be topics for tutorial discussion, but the essay is on monetary policy at the "ZLB".

Readings

C&S Ch. 5 (old or new ed.), C&S Ch. 13 (new ed.)

For further suggestions, see the Departmental reading list here.

Assignment

Please write an essay on the following topic.

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?