11 Higher probabilities would of course alter the cost-benefit equation, since the expected longterm cost of choosing a target that is “too low” is a function of how often one is likely to hit the zero bound and the costs that are incurred once that occurs.
Does the fact that we have recently hit the zero bound suggest that earlier estimates were too small, and that such encounters are likely to be more frequent in the future? Will the efforts that are under way to reform the financial system make it more stable and reduce the chances of similar occurrences in the future?