Low Real Interest Rates and the Zero Lower Bound

How do low real interest rates constrain monetary policy?Is the zero lower bound optimal if the real interest rate is su¢ciently low?What is the role of forward guidance?A model is constructed that can incorporate sticky price frictions, collateral constraints, and conventional monetary distortions.The model has neo-Fisherian properties.Forward guidance in a liquidity trap works through the promise of higher future in ‡ation, generated by a higher future nominal interest rate.With very tight collateral constraints, the real interest rate can be very low, but the zero lower bound need not be optimal.The views expressed are those of the author and do not necessarily re ‡ect o¢cial positions of the Federal Reserve Bank of St. Louis, the Federal Reserve System, or the Board of Governors.The author thanks seminar participants at the Federal Reserve Bank of St. Louis,