Shadow Rates as a Measure of the Monetary Policy Stance: Some International Evidence

Christina Anderl and Guglielmo Maria Caporale

No 9839, CESifo Working Paper Series from CESifo

Abstract: This paper examines the usefulness of shadow rates to measure the monetary policy stance by comparing them to the official policy rates and those implied by three types of Taylor rules in both inflation targeting countries (the UK, Canada, Australia and New Zealand) and others that have only targeted inflation at times (the US, Japan, the Euro Area and Switzerland) over the period from the early 1990s to December 2021. Shadow rates estimated from a dynamic factor model are shown to suggest a much looser policy stance than either the official policy rates or those implied by the Taylor rules, and generally to provide a more accurate picture of the monetary policy stance during both ZLB and non-ZLB periods, since they reflect the full range of unconventional policy measures used by central banks. Further, generalised impulse response analysis based on two alternative Vector Autoregression (VAR) models indicates that monetary shocks based on the shadow rates are more informative than those related to the official policy rates, especially during the Global Financial Crisis and the recent Covid-19 pandemic, when unconventional measures have been adopted.

Keywords: dynamic factor models; shadow rates; inflation targeting; monetary policy stance (search for similar items in EconPapers)
JEL-codes: C38 E43 E52 E58 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Shadow rates as a measure of the monetary policy stance: Some international evidence (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9839

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