Zero Bound

Posted in Finance, Accounting and Economics Terms, Total Reads: 288
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Definition: Zero Bound

It refers to a situation wherein the Federal Reserve in USA has reduced short-term interest rates to zero or nearly zero. This is generally done to tackle recession and achieve healthy inflation.


Contrary to the common myth, inflation is not all bad. Excessive inflation is bad. However, inflation in the range of 0-2% is considered desirable and the developed economies have been resorting to innovative measures to achieve the target of 2% inflation.

 

Zero-bound in another context, refers to a stock which has a negative downward momentum and it is expected that it will move to zero with time.

 

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