What does Monetary Policy do to Long-Term Interest Rates at the Zero Lower Bound?

Jonathan Wright

No 17154, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The federal funds rate has been stuck at the zero bound for over two years and the Fed has turned to unconventional monetary policies, such as large scale asset purchases to provide stimulus to the economy. This paper uses a structural VAR with daily data to identify the effects of monetary policy shocks on various longer-term interest rates during this period. The VAR is identified using the assumption that monetary policy shocks are heteroskedastic: monetary policy shocks have especially high variance on days of FOMC meetings and certain speeches, while there is nothing unusual about these days from the perspective of any other shocks to the economy. A complementary high-frequency event-study approach is also used. I find that stimulative monetary policy shocks lower Treasury and corporate bond yields, but the effects die off fairly fast, with an estimated half-life of about two months.

JEL-codes: C22 E43 E58 (search for similar items in EconPapers)
Date: 2011-06
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: ME
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Citations: View citations in EconPapers (66)

Published as \What does Monetary Policy do to Long-term Interest Rates at the Zero Lower Bound?", Economic Journal , vol. 122 (2012), pp.F447-F466.

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