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A model for interest rates near the zero lower bound - An overview and discussion

Leo Krippner

Operating monetary policy when interest rates are already at or near zero comes with many challenges, as many countries have discovered in recent years. One aspect is that, if effective easing beyond a zero policy rate is desired, the policy rate constrained at zero will no longer conveniently summarise the stance of monetary policy and its typical transmission into the yield curve (longer-maturity interest rates) and the economy. In this note, I show how a framework for representing yield curve data in a zero lower bound (ZLB) environment can still allow monetary policy to be conveniently summarised in terms of an effective policy rate.