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Zero Lower Bound,Macroeconomic Fluctuations and Mixed Monetary Policy Framework

【Authors】
YANG Yuanyuan,YU Jinping & GAO Jiechao
【WorkUnit】
YANG Yuanyuan (Nanjing Audit University,211815)YU Jinping (Nanjing University,210093)GAO Jiechao (Shanghai University of International Business and Economics,201620)
【Abstract】

The sustained macroeconomic downturn has led to a wide academic debate on the effectiveness of monetary policy. The paper develops a mixed monetary policy theory framework to analyze the differences of macroeconomic dynamics and the effectiveness of structural monetary policies in the cases of considering and without considering the zero lower bound of nominal interest rate. The results show that the degrees of output recession and deflation caused by demand decline are more severe in the case of considering zero lower bound; the shock of supply decline will not lead the nominal interest rate to hitting the zero lower limit so that the macroeconomic fluctuations have no significant difference under two kinds of bounds; the effectiveness of quantitative regulation will be significantly reduced while price regulation will be completely ineffective under the zero lower bound. The paper argues that the model considering the zero lower bound of interest rate can better describe the real economic cycle and policy effects and ignoring the zero lower bound will lead to a cognitive bias on macroeconomic forecasting and the effectiveness of policy regulation. In addition,the paper suggests that the policy portfolio with “more emphasis on quantitative control and less on price control” is also the optimal monetary policy paradigm choice under the circumstance of demand downturn,and the central bank should pay more attention to lowering the real interest rate. In the meanwhile,the government should pay attention to the coordination of macro policies in the case of low interest rate,implement more active fiscal policies to exert effective policy synergy with monetary policies,and promote the stable and high-quality development of real economy to get rid of the lower bound constraint of interest rate.


JEL:E12,E32,E52

【KeyWords】
Zero Lower Bound,Quantitative Control,Price Control,Macroeconomic Fluctuations