The Federal Reserve Is Not Very Constrained by the Lower Bound on Nominal Interest Rates

Eric T. Swanson

No 25123, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: I survey the literature on monetary policy at the zero lower bound (ZLB) and effective lower bound (ELB) to make three main points: First, the Federal Reserve’s forward guidance and large-scale asset purchases are effective monetary policy tools at the Z/ELB. Second, during the 2008–15 U.S. ZLB period, the Fed was not very constrained in its ability to influence medium- and longer-term interest rates and the economy. Third, the risks of the Fed being significantly constrained by the ELB in the future are typically greatly overstated. I conclude that the Federal Reserve is not very constrained by the lower bound on nominal interest rates.

JEL-codes: E43 E52 E58 (search for similar items in EconPapers)
Date: 2018-10
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: EFG ME
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Citations: View citations in EconPapers (52)

Published as Eric T. Swanson, 2018. "The Federal Reserve Is Not Very Constrained by the Lower Bound on Nominal Interest Rates," Brookings Papers on Economic Activity, vol 2018(2), pages 555-572.

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