Pennsylvania State University
Institutional Affiliations: Pennsylvania State University and National Research University Higher School of Economics
Information about this author at RePEc
NBER Working Papers and Publications
|July 2015||Time Consistency and the Duration of Government Debt: A Signalling Theory of Quantitative Easing|
with , : w21336
We present a signalling theory of Quantitative Easing (QE) at the zero lower bound on the short term nominal interest rate. QE is effective because it generates a credible signal of low future real interest rates in a time consistent equilibrium. We show these results in two models. One has coordinated monetary and fiscal policy. The other an independent central bank with balance sheet concerns. Numerical experiments show that the signalling effect can be substantial in both models.