Definitions for Zero Lower Bound
zero lower bound

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1. Zero lower bound

   The Zero Lower Bound (ZLB) or Zero Nominal Lower Bound (ZNLB) is a macroeconomic problem that occurs when the short-term nominal interest rate is at or near zero, causing a liquidity trap and limiting the central bank's capacity to stimulate economic growth. The root cause of the ZLB is the issuance of paper currency by governments, effectively guaranteeing a zero nominal interest rate and acting as an interest rate floor. Governments cannot encourage spending by lowering interest rates, because people would simply hold cash instead. Miles Kimball suggested that a modern economy either fully relying on electronic money or defining electronic money as the unit of account could eliminate the ZLB. Even without such measures, however, several central banks are able to reduce interest rates below zero; for example, the Czech National Bank estimates that the lower limit on its interest rate is below -1%.The problem of the ZLB returned to prominence with Japan's experience during the 90's, and more recently with the subprime crisis. The belief that monetary policy under the ZLB was effective in promoting economy growth has been critiqued by Paul Krugman, Gauti Eggertsson, and Michael Woodford among others. Milton Friedman, on the other hand, argued that a zero nominal interest rate presents no problem for monetary policy. According to Friedman, a central bank can increase the monetary base even if the interest rate vanishes; it only needs to continue buying bonds. Friedman also coined the term "helicopter drops" to illustrate how central banks could always generate spending and inflation. Friedman used the example of a helicopter flying over a town dropping dollar bills from the sky, which households then gathered in perfectly equal shares. Economists have argued that real-world versions of this idea would work at the zero lower bound. Typically, helicopter drops have been interpreted as involving the central bank directly financing the budget deficit. The economist Willem Buiter has argued that helicopter drops can always raise demand and inflation. Following the repeated struggles of the European Central Bank to revive the Eurozone economy and meet its inflation objective, a number of economists have taken a more literal interpretation of Friedman's parable and suggested that the European Central Bank should transfer cash directly to households.

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Numerology

1. Chaldean Numerology

   The numerical value of Zero Lower Bound in Chaldean Numerology is: 5

2. Pythagorean Numerology

   The numerical value of Zero Lower Bound in Pythagorean Numerology is: 4

Examples of Zero Lower Bound in a Sentence

1. Michael Owyang:

   There has been a lot of new research. Volumes of new research. And I am not sure there is a consensus about how policy affects inflation at the zero lower bound, inflation dynamics have changed.

2. Stanley Fischer:

   Whatever the cause, other things being equal, a lower level of the long-run equilibrium real rate suggests that the frequency and duration of future episodes in which monetary policy is constrained by the (zero lower bound) will be higher than in the past.

3. Andy Haldane:

   If global real interest rates are persistently lower, central banks may then need to think imaginatively about how to deal on a more durable basis with the technological constraint imposed by the zero lower bound on interest rates, that may require a rethink, a fairly fundamental one, of a number of current central bank practices.

4. William Dudley:

   I believe that the risks of lifting the federal funds rate off of the zero lower bound a bit early are higher than the risks of lifting off a bit late, this argues for a more inertial approach to policy.

5. Cleveland Fed President Loretta Mester:

   While explicit forward guidance was used as a policy tool during the recession and earlier in the recovery, in more normal times, away from the zero lower bound, I believe forward guidance should be viewed more as a communications device, as such, I would like to see the forward guidance evolve over time to give more information about the conditions we systematically assess in calibrating the stance of policy to the economy's actual progress and anticipated progress toward our dual-mandate goals.

References

1. ^ Wikipedia
   https://en.wikipedia.org/wiki/Zero_Lower_Bound