Chapter 24, Problem 5LO

To determine

To Explain:

The unique difficulties that the monetary policymakers face at zero lower bound and how the non-conventional monetary policy can be useful in such situations.

Concept introduction:

Zero Lower Bound: It is a situation where the central bank of a country cannot lower the short-term nominal interest rates as the interest rate reaches or nears zero.

Non-Conventional Monetary Policy:  A central bank usually alters its policy rate to stabilize the economy when it is faced by any supply or demand shock. The bank also uses liquidity interventions so that the 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 impractical or insufficient.