EBK ECONOMICS OF MONEY, BANKING AND FIN
EBK ECONOMICS OF MONEY, BANKING AND FIN
5th Edition
ISBN: 8220106799727
Author: Mishkin
Publisher: PEARSON
bartleby

Concept explainers

Question
Book Icon
Chapter 24, Problem 24Q
To determine

To Explain:

The way in which nonconventional monetary policy affects the real interest rate for investment at zero lower bound and its impact on credit spread

Concept introduction:

Non-Conventional Monetary Policy:  A central bank usually alters its policy rate to stabilize the economy when it is faced with any supply or demand shock. The bank also uses liquidity interventions so that short-term money market rates stay close to their desired value. Non-conventional monetary policy includes any other action that a central bank can take to stimulate monetary conditions when the first course of action is proved to be impractical or insufficient.

Zero-Lower Bound: The nominal rate of interest has some lower bound. It cannot fall beyond that point. Realistically the nominal rate of interest can be slightly negative as depositors may agree to pay the bank a small amount for keeping their money safe or for providing the convenience of quick money. But for the sake of simplicity of theoretical analysis, it has been assumed by the economists that nominal interest rate cannot be negative. If the central bank finds that the desired real interest rate needs a negative nominal rate of interest, it will set the nominal interest rate to zero. This is known as zero lower bound.

Blurred answer
Knowledge Booster
Background pattern image
Economics
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:9780190931919
Author:NEWNAN
Publisher:Oxford University Press
Text book image
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Text book image
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education