ABSTRACT
A general feature in the reaction of the economy to shocks under the zero lower bound (ZLB) is that the effects of demand shocks are amplified, whereas the effects of supply shocks are dampened. The solution to the ZLB that is favoured by most central banks is to make recourse to so-called non-standard monetary policies. An economy under a zero bound has a quaint behaviour in several respects. In general this is still an important unresolved aspect of modern monetary policy making which has significant macroeconomic consequences. This chapter explains four of five possible ways to circumvent the zero bound. The five remedies are: increasing the inflation target; lowering long-term interest rates, rather than the short-term interest rate, i.e. reducing term and risk premia; abolishing paper currency; price level targeting; and de-linking the unit of account from the medium of exchange.
