This paper argues that the long quiet zero bound is an important experiment. The zero bound or an interest rate peg can be stable , and determinate. Longstanding contrary doctrines are simply wrong -- the doctrine that interest rate pegs must be unstable , starting with Milton Friedman , or the new-Keynesian view that the zero bound will lead to sunspot volatility.
I struggle hard with the implication that raising interest rates will eventually raise inflation. I've posted the paper before , but if any of you are following it this is a big revision.
What happens to inflation at the zero bound , and with a huge expansion of reserves? The big surprise: Nothing. This dog did not bark.
