This dissertation consists of three essays on monetary economics. The first two essays have a focus on the zero lower bound on the nominal interest rate (ZLB) and the Great Recession. In the first essay, I investigate optimal discretionary monetary policy under the ZLB in the case of a distorted steady state due to monopoly and taxation. I find that the central bank in a more distorted economy would cut the interest rate less aggressively under a particular adverse demand shock. This occurs because the ZLB is less likely to bind and the economy escapes from the ZLB sooner. In addition, I show that the conventional linear-quadratic method is not accurate when the ZLB binds. In the second essay, I model the role of subprime lending, deleveraging and an incomplete financial market in driving an economy to the liquidity trap with binding ZLB. There are two key features that differentiate my work from the current literature of deleveraging and the ZLB. First, I endogenize the debt limit of borrowing-constrained households by tying it to the market value of collateral assets. Second and more importantly, I allow for subprime lending. I am able to show that the second feature drives the economy to the ZLB more likely under an adverse shock to the credit market. When the ZLB binds, a great recession emerges with a free fall in output and the price level, mostly due to the Fisherian debt deflation that puts more debt burden on the borrowers. The third essay examines the role of habit formation in solving the persistence problem - output response is transient and not hump-shaped under a monetary shock - in the conventional state dependent pricing model. Intuitively, incorporating habit formation makes consumers less aggressive in spending under a shock, resulting in more persistent response of output. With a moderate habit formation, I am able to show that the model produces hump-shaped and very persistent response of output under a monetary growth shock.

This diploma thesis deals with the CNB’s foreign exchange interventions that took place in 2013-2017. The thesis presents concrete recommendations for economic policy maker who consider using foreign exchange intervention as an unconventional monetary policy tool in the situation of ZLB. The recommendations are based on the assessment of the effects of foreign exchange intervention on the Czech economy. Specifically, the thesis verifies whether foreign exchange interventions really stimulated consumer price inflation in the Czech Republic. Moreover, the thesis verifies whether there was a change in the growth of labour productivity at major domestic exporters at the time of foreign exchange interventions. Last but not least, the thesis examines the impact of foreign exchange interventions on the CNB’s bottom lines in 2013-2018.

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