Fig. 6.

The COVID-19 Effect: The Role of the Perceived Response of Monetary Policy. Notes: Same scenario as in Fig. 4, but contrasting the baseline COVID-19 effect (red lines) with a scenario in which the target interest rate is adjusted perfectly for movements in the natural rate of interest (blue lines), provided this is possible in light of the effective lower bound. Top row: output and inflation. Bottom row, left panel: natural rate of interest, the evolution of which is identical under both scenarios. Bottom row, right panel: Share of simulations for which economy is at the ELB, by period. (For interpretation of the references to colour in this figure legend, the reader is referred to the web version of this article.)