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Optimal Monetary Policy Rule under the Non-Negativity Constraint on Nominal Interest Rates*1

June 2004
Tomohiro Sugo*2
Yuki Teranishi*3

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  • *1 We would like to thank Marc Giannoni and Pierpaolo Benigno. Also, we are grateful for the encouragements of Kosuke Aoki, Toshitaka Sekine, and Michael Woodford. The views expressed here are those of the authors and do not reflect those of Bank of Japan.
  • *2 Currently at the Rochester University, e-mail: sugo@troi.cc.rochester.edu
  • *3 Research and Statistics Department, e-mail: yuuki.teranishi@boj.or.jp

Abstract

We identify a monetary policy rule that remains optimal even in the presence of the non-negativity constraint on nominal interest rates. This rule also compensates for any past shortfalls in monetary easing during the zero interest rate period.

Keywords:
optimal monetary policy rule; non-negativity constraint on nominal interest rates