Dynamic Debt Deleveraging and Optimal Monetary Policy

摘要

Explicitly deriving how the optimal monetary policy can be implemented is beyond the scope of this paper. Here, let us set forth few observations by way of conclusion. One issue for policy implementation is that where a rich stochastic structure underlies the model, it could be difficult to communicate it in terms of state-contingent paths for the interest rate. One solution, suggested by Eggertsson and Woodford (2003), is a simple price-level targeting criterion; that is, the central bank keeps the nominal interest rate at zero until it reaches a certain target that is the combination of price and output levels. If the target is not reached due to the ZLB, a formula is provided for how the target should be revised upward. Critically, however, the formula for the targeting criterion depends only on past deviations of policy from the suggested target.