Taylor-Rule Exit Policies For The Zero Lower Bound

The monetary authority loses the ability to implement the Taylor rule at the zero lower bound. However, the promise to implement a Taylor rule upon exit remains an effective policy instrument. We show that a Taylor rule, with an optimally chosen exit date and time-varying inflation target, delivers fully optimal policy at the zero lower bound. Additionally, a Taylor rule with only an optimally chosen exit date but a zero inflation target delivers almost all the welfare gains of optimal policy and is simpler to communicate.