Managing Monetary Policy Normalization

DOI
Abstract
We propose a new framework for monetary policy analysis to study monetary policy normalization when exiting a liquidity trap. The optimal combination of reserves and interest rate policy requires an increase in liquidity (reserves) a few quarters after the policy rate is set at the effective lower bound. Removal of accommodation requires that quantitative tightening starts before the liftoff of the policy rate. Moreover, the withdrawal of liquidity takes place at a very slow pace relative to the normalization of the policy rate.
Date Issued
2022
Publication Type
Working Paper
Subject(s)
Language(s)
en
Author(s)
Benigno, Gianluca
Additional Credits
ISSN
0265-8003
Access(Rights)
restricted
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