Such rules are also often used to close models supporting monetary policy analysis or they result as the optimal policy from optimising exercises with macro models. It is therefore useful to use different interest rate rules in models and analyse what their impact on the economy would be. In particular, this is interesting when trying to respond to an important policy question.
Given the present low level of inflation how can the risk of interest rates reaching the Effective Lower Bound (ELB) too often be avoided and can this lead to significant losses in terms of the policy objectives?19 Until recently, the conventional wisdom was that the lower bound of interest rates was zero, the so‐ called Zero Lower Bound (ZLB).