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Federal Reserve Bank of Richmond
Richmond Fed Economic Brief
How Likely Is a Return to the Zero Lower Bound?
Thomas A. Lubik
Christian Matthes
David A. Price
Abstract

The likelihood of returning to near-zero interest rates is relevant to policymakers in considering the path of future interest rates. At the zero lower bound, the Fed can no longer lower rates and thus can respond to a contraction only through alternative policy measures, such as quantitative easing. Recent research at the Richmond Fed has used repeated simulations of the U.S. economy to estimate the probability of such an occurrence over the next ten years. The estimated probability of returning to the zero lower bound one or more times during this period is approximately one chance in four.


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Thomas A. Lubik & Christian Matthes & David A. Price, "How Likely Is a Return to the Zero Lower Bound?" , Federal Reserve Bank of Richmond, Richmond Fed Economic Brief, issue September, pages 1-4, 2018.
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Keywords: interest rates; nominal interest rates; VAR; vector autoregression model
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