Nothing new here. This is just a brief summary of my views:
0. I assume here that currency exists, pays 0% nominal interest, and
can be safely stored at low cost. Drop those assumptions and things
change.1. If real interest rates fall, government spending G should very probably increase, especially government investment spending, on purely micro-theoretic cost-benefit grounds. Because the Net Present Value of a government spending project will probably be higher if real interest rates fall.
2. If central banks had a sensible monetary policy target, like a level-path for NGDP with 5% growth, it is unlikely that the Zero Lower Bound would be hit, and the central bank would need to resort to "unconventional" monetary policy.
3. "Unconventional" monetary policy is a very silly and misleading term. All central banks always use "forward guidance" of one form or another, because they know that expectations always matter. All central banks always do "Quantitative Easing(/tightening" because they always buy (and sell) things with the money they print. The things that appear on the asset side of a central bank's balance sheet are there because they bought those things in the past. The only sensible thing to say is that central banks sometimes buy more things than they usually buy, and sometimes buy different things than they usually buy.
4. The ZLB is only a strictly binding constraint if the central bank runs out of things to buy. It has an extremely large and extremely diverse asset side of its balance sheet, because it already owns all the assets in the world, including your house, car, and clothes, which it rents back to you. This is extremely unlikely to happen, for any NGDP target that is not very silly (like targeting negative NGDP growth)....MORE
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