Beyond the zero lower bound on nominal interest rates

PRIOR to the crisis, there was a general (if tenuous) accord among macroeconomists of many different stripes, that the Federal Reserve could and would act to stabilise the economy when necessary. Then, in December of 2008, the Fed hit the zero lower bound, when it dropped its target for the federal funds rate to between 0% and 0.25%, where it has sat ever since. At the time, the unemployment rate was 7.3%. It eventually peaked at 10% about a year later, and it has come down, very slowly and fitfully, to just 8.5% since then.

By Olivier Coibion, Yuriy Gorodnichenko, and Johannes Wieland

Stanford Professor John Taylor has suggested that monetary policy could be summarized in terms of a simple rule, lowering interest rates when output is too low and raising them when inflation is too high. A number of academic papers have investigated this rule from the perspective of describing what the Federal Reserve has historically done.

Tyler Cowen asked yesterday if the stimulative impact of hypothetical negative nominal interest rates wouldn’t just be undermined by people shifting into a different currency. My first response was that such a move would reduce the value of the currency in question, thus expanding demand through the net exports channel. But my second and better response is that whatever problems may or may not exist in this domain have nothing in particular to do with negative nominal interest rates.

This paper from the SF Fed conference might be of interest (it's a bit technical in some sections):

The way to analyze whether, at the margin, it is raising or lowering government spending that is better for the economy right now is to do a benefit-cost analysis. Following DeLong and Summers (2012), let the parameters for an economy at the zero lower bound of nominal interest rates and with anchored inflation expectations be:

By Faisal Humayun: In general, the level of nominal short-term interest rates is taken to indicate the stance of policy. Lower values are described as easy policy and higher value as a tight policy stance. The FOMC's policy rate has been effectively pegged at near-zero levels since December 2008. How would one describe the monetary policy stance given this development?