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Should we expect inflation to be stable at the Effective Lower Bound? According to the workhorse model for monetary policy analysis,
the answer should be no as the economy experiences sunspots/multiple equilibria. In this paper, I show that
if we take monetary policy seriously, this possibility becomes much less likely. Using a model in which monetary policy is optimal subject to
a loose commitment constraint, I show that there is a threshold degree of commitment such that
the equilibrium is unique at the ELB. In this case, inflation will be stable at the ELB. Further, if the degree of commitment is high enough then (i) the model
does not feature policy puzzles and (ii) converges smoothly to its flexible price limit. These features help to reconcile the New Keynesian model with recent empirical evidence.
