Deflationary shocks and monetary rules
Subtitle: an open-economy scenario analysis
By: Douglas Laxton, Papa N'Diaye, Paolo Pesenti
Contributors: N'Diaye,Papa; Paolo, Pesenti; National Bureau of Economic Research
Series: NBER working paper series -- working paper 12703; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 12703.
Publisher: National Bureau of Economic Research
Published: 2006
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] :
Description: "The paper considers the macroeconomic transmission of demand and supply shocks in an open economy under alternative assumptions on whether the zero interest floor (ZIF) is binding.  It uses a two country general-equilibrium simulation model calibrated to the Japanese economy vis a vis the rest of the world.  Negative demand shocks have more prolonged and startling effects on the economy when the ZIF is binding than when it is not binding.  Positive supply shocks can actually extend the period of time over which the ZIF may be expected to bind.  More open economies hit the ZIF for a shorter period of time, and with less harmful effects.  Deflationary supply shocks have different implications according to whether they are concentrated in the tradables rather than the nontradables sector.  Price level path targeting rules are likely to provide better guidelines for monetary policy in a deflationary environment, and have desirable properties in normal times when the ZIF is not binding" National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 12/20/2006.

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