A Structural Measure of the Shadow Federal Funds Rate

Callum Jones, Mariano Kulish and James Morley

No 2021-064, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We propose a shadow policy interest rate based on an estimated structural model that accounts for the zero lower bound. The lower bound constraint, if expected to bind, is contractionary and increases the shadow rate compared to an unconstrained systematic policy response. By contrast, forward guidance and other unconventional policies that extend the expected duration of zero-interest-rate policy are expansionary and decrease the shadow rate. By quantifying these distinct effects, our structural shadow federal funds rate better captures the stance of monetary policy given economic conditions than a shadow rate based only on the term structure of interest rates.

Keywords: Zero lower bound; Forward guidance; Shadow rate; Monetary policy (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 40 p.
Date: 2021-10-07
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
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https://www.federalreserve.gov/econres/feds/files/2021064pap.pdf (application/pdf)

Related works:
Working Paper: A Structural Measure of the Shadow Federal Funds Rate (2024)
Working Paper: A Structural Measure of the Shadow Federal Funds Rate (2022)
Working Paper: A Structural Measure of the Shadow Federal Funds Rate (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2021-64

DOI: 10.17016/FEDS.2021.064

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