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Survey of Economics-Discussion

Survey of Economics-Discussion

Q Since the last recession (2007-2008) interest rates haven't recovered much... Which is a kind way to put "the Fed left rates low and there they stayed". With another recession eminent -- not eminent in the sense that it's going to happen tomorrow, just eminent in the sense we know it's going to happen, I wanted to consider the zero lower bound problem. In short, interest rates cannot fall much below zero. Consider Ben Bernanke's take on the problem: https://www.brookings.edu/blog/ben-bernanke/2017/04/13/the-zero-lower-bound-on-interest-rates-how-should-the-fed-respond/ (Links to an external site.)Links to an external site. PDF available here . Does the zero lower bound seem like a problem in your view? How would you handle it? Add your initial thoughts by Friday and follow-up posts by Sunday.

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Zero lower bound is a problem regarding the monetary policy and it occurs when the short run nominal interest rate becomes extremely small, almost equals to zero. The zero lower bound generates obstacle in the economic growth by creating the liquidity trap. The effectiveness of the momentary policy would reduce significantly due to the zero economic policy. One of the problems regarding the zero lower balance is in that when the interest rate is nearly zero, the central bank can’t reduce the interest rate any further.