Ways of Overcoming Zero-Lower Bound - Essay Example

An easy model of the euro exchange economy can also be used to remove the lower bound which affects on the short period threatening free nominal interest (Buiter, 2010, p. 219).  On the other hand, during price setting, the New-Calvo-Woodford approach can be used in setting prices. Their approach involves secretive division in the euro-currency financial system, the government in the euro exchange economy, equilibrium in the euro currency economy, deterministic steady state in the euro currency economy and lastly the lower bound which can become a binding constraint in the euro currency economy (Buiter, 2010, p.223).

In prevailing over the lower bound on a nominal charge, one can use the following strategies: eliminating currency, disbursing negative interest rates on money (Buiter, 2010) or taxing money or even dividing the standard of trade. The three methods of eliminating subordinate bound on nominal interest play a role in making it possible to ensure that it targets the true stability of prices (Buiter, 2010).

The author's use of quotes from outside sources gives a backup to the points that are highlighted in the report. He used seventy outside sources to support his main ideas concerning monetary policy. The examples used have a methodology to come up with the main idea discussed.