On this page, we examine short-run macroeconomic equilibrium and policy issues during severe economic downturns, including when the zero lower bound (zlb) constrains monetary policy makers.
Important: The material on this page requires that you have a basic knowledge of the short-run macro model, and especially the monetary policy relationship. To access this preparatory material, click on the button to the right.
This is Part I of a two part video on the Zero Lower Bound (zlb).
Highly Recommended: The video shows how the Real Taylor (RT) curve is expanded to include the zero lower bound on nominal interest rates that central banks face during extreme economic downturns and/or low inflation.
This is Part II of a two part video on the Zero Lower Bound (zlb).
Highly Recommended: The video shows how adverse shocks to demand and inflationary expectations can push the economy into zlb territory -- a territory that central bankers very much want to avoid.
Learn more about the Taylor Rule.
Highly Recommended: The spreadsheet based exercise and the video shows how to derive the RT curve -- including for ZLB territory.
This is the IS/RT/PC model that incorporates the Zero Lower Bound (ZLB).
Highly Recommended: This spreadsheet can analyze both 'normal' times and extreme recessons -- when the ZLB constrains the central bank.