If the steady state inflation is close to zero, the steady state nominal interest rate that the central bank has to set in order to keep inflation at that level on average is also not too far from zero. But then, if a sharp recession hits, a central bank rapidly runs out of space for an effective standard easing of monetary conditions.
Jürgen Stark: Lessons for central bankers from the history of the Phillips Curve Speech by Mr Jürgen Stark, Member of the Executive Board of the European Central Bank, at the Federal Reserve Bank of Boston’s Annual Economic Conference “Understanding Inflation and the Implications for Monetary Policy: A Phillips Curve Retrospective”, Chatham, Massachusetts, 11 June 2008.