Title: Animal spirits, risk premia and monetary policy at the zero lower bound
Authors: Christian Proano - University of Bamberg (Germany) [presenting]
Benjamin Lojak - University of Bamberg (Germany)
Abstract: A stylized macroeconomic model is set up to analyze the risk-related effects of monetary policy under boundedly rational perceptions both in normal times, as well as in periods where the zero lower bound (ZLB) binds. In our model financial market participants use alternative heuristics to assess the risk premium over the policy rate in accordance to an ``implicit Taylor rule'' that measures the stance of conventional monetary policy and which serves as an informative instrument during times when the funds rate is constrained by the ZLB. In such a case, conventional monetary policy is totally exhausted so that the central bank is forced to move to unconventional types of policy. We propose alternative monetary policy measures out of the liquidity trap effective under the assumed form of bounded rationality.