Anticipation effects can make lower bound a self-fulfilling prophecy – BoJ paper
Negative rates have only a small impact on duration, author finds
An economy can find itself moving more quickly to the zero lower bound (ZLB) on interest rates when people expect it to happen, a paper published today (August 25) by the Bank of Japan finds.
Using a New Keynesian model that includes capital as a productive input, Richard Dennis produces an "anticipation effect" in his paper, Durations at the Zero Lower Bound.
As an economy approaches zero, households anticipate rates will fall further in future, which causes them to defer consumption in favour
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