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Working Paper
Some unpleasant properties of loglinearized solutions when the nominal rate is zero
Waki, Yuichiro; Braun, R. Anton; Korber, Lena Mareen (2012)
Does fiscal policy have large and qualitatively different effects on the economy when the nominal interest rate is zero? An emerging consensus in the New Keynesian (NK) literature is that the answer to this question is yes. Evidence presented here suggests that the NK model's implications for fiscal policy at the zero bound may not be all that different from its implications for policy away from it. For a range of empirically relevant parameterizations, employment increases when the labor tax rate is cut and the government purchase multiplier is less than 1.05.
FRB Atlanta Working Paper , Paper 2012-05

Working Paper
A New Way to Quantify the Effect of Uncertainty
Throckmorton, Nathaniel A.; Richter, Alexander W. (2017-05-04)
This paper develops a new way to quantify the effect of uncertainty and other higher-order moments. First, we estimate a nonlinear model using Bayesian methods with data on uncertainty, in addition to common macro time series. This key step allows us to decompose the exogenous and endogenous sources of uncertainty, calculate the effect of volatility following the cost of business cycles literature, and generate data-driven policy functions for any higherorder moment. Second, we use the Euler equation to analytically decompose consumption into several terms--expected consumption, the ex-ante ...
Working Papers , Paper 1705

Working Paper
Demand for M2 at the Zero Lower Bound: The Recent U.S. Experience
Schlusche, Bernd; Wong, Vivian; Judson, Ruth (2014-01-24)
In this paper, we re-examine the relationship between money and interest rates with a focus on the past few years, when the opportunity cost of M2 has dropped below zero. Until the late 1980s, a stable relationship between monetary aggregates and the opportunity cost of holding money--measured as the spread between the three-month Treasury bill yield and the deposit-weighted average return on M2 assets--existed, and played an integral role in the conduct of monetary policy (e.g., Moore et al.(1990)). This relationship broke down in the early 1990s, when M2 velocity increased beyond the range ...
Finance and Economics Discussion Series , Paper 2014-22

Working Paper
Fiscal Multipliers at the Zero Lower Bound: The Role of Policy Inertia
Hills, Timothy S.; Nakata, Taisuke (2014-11-20)
The presence of the lagged shadow policy rate in the interest rate feedback rule reduces the government spending multiplier nontrivially when the policy rate is constrained at the zero lower bound (ZLB). In the economy with policy inertia, increased inflation and output due to higher government spending during a recession speed up the return of the policy rate to the steady state after the recession ends. This in turn dampens the expansionary effects of the government spending during the recession via expectations. In our baseline calibration, the output multiplier at the ZLB is 2.5 when the ...
Finance and Economics Discussion Series , Paper 2014-107

Working Paper
The Perils of Nominal Targets
Armenter, Roc (2016-11-10)
A monetary authority can be committed to pursuing an inflation, price-level, or nominal-GDP target yet systematically fail to achieve the prescribed goal. Con- strained by the zero lower bound on the policy rate, the monetary authority is unable to implement its objectives when private-sector expectations stray far enough from the target. Low-inflation expectations become self-fulfilling, resulting in an additional Markov equilibrium in which the monetary authority falls short of the nominal target, average output is below its efficient level, and the policy rate is typically low. Introducing ...
Working Papers , Paper 16-30

Working Paper
Modeling Yields at the Zero Lower Bound: Are Shadow Rates the Solution?
Christensen, Jens H. E.; Rudebusch, Glenn D. (2013-12-17)
Recent U.S. Treasury yields have been constrained to some extent by the zero lower bound (ZLB) on nominal interest rates. In modeling these yields, we compare the performance of a standard affine Gaussian dynamic term structure model (DTSM), which ignores the ZLB, and a shadow-rate DTSM, which respects the ZLB. We find that the standard affine model is likely to exhibit declines in fit and forecast performance with very low interest rates. In contrast, the shadow-rate model mitigates ZLB problems significantly and we document superior performance for this model class in the most recent period.
Working Paper Series , Paper 2013-39

Working Paper
Raising the Inflation Target: How Much Extra Room Does It Really Give?
Schoenle, Raphael; L'Huillier, Jean-Paul (2020-06-16)
Some, but less than intended. The reason is a shift in the behavior of the private sector: Prices adjust more frequently, lowering the potency of monetary policy. We quantitatively investigate this channel across different models, based on a calibration using micro data. By raising the target from 2 percent to 4 percent, the monetary authority gets only between 0.51 and 1.60 percentage points of effective extra policy room for monetary policy (not 2 percentage points as intended). Getting 2 percentage points of effective extra room requires raising the target to more than 4 percent. Taking ...
Working Papers , Paper 20-16

Working Paper
Reputation and Liquidity Traps
Nakata, Taisuke (2014-06-17)
Can the central bank credibly commit to keeping the nominal interest rate low for an extended period of time in the aftermath of a deep recession? By analyzing credible plans in a sticky-price economy with occasionally binding zero lower bound constraints, I find that the answer is yes if contractionary shocks hit the economy with sufficient frequency. In the best credible plan, if the central bank reneges on the promise of low policy rates, it will lose reputation and the private sector will not believe such promises in future recessions. When the shock hits the economy sufficiently ...
Finance and Economics Discussion Series , Paper 2014-50

Journal Article
How Likely Is the Zero Lower Bound?
Matthes, Christian; Lubik, Thomas A. (2019-01)
We estimate the probability that the federal funds rate will be at or below the zero lower bound over a ten-year time horizon. We do so by specifying and estimating a time-varying parameter vector autoregressive model for key US macroeconomic aggregates. Based on the estimated model, we generate a distribution of future outcomes from which we compute such probabilities. We find that the zero lower bound probability ranges between 15 percent and 30 percent in the longer term depending on the specific measure used. In the near term, this probability is effectively zero. Robustness checks for ...
Economic Quarterly , Issue 1Q , Pages 41-54

Speech
Implementing monetary policy with the balance sheet: keynote remarks for ECB Workshop: Money Markets, Monetary Policy Implementation, and Central Bank Balance Sheets, Frankfurt am Main, Germany
Potter, Simon M. (2017-11-06)
Keynote Remarks for ECB Workshop: Money Markets, Monetary Policy Implementation, and Central Bank Balance Sheets, Frankfurt am Main, Germany.
Speech , Paper 259

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