Measuring the Effect of the Zero Lower Bound on Medium- and Longer-Term Interest Rates

Eric Swanson and John Williams

American Economic Review, 2014, vol. 104, issue 10, 3154-85

Abstract: According to standard macroeconomic models, the zero lower bound greatly reduces the effectiveness of monetary policy and increases the efficacy of fiscal policy. However, private-sector decisions depend on the entire path of expected future short-term interest rates, not just the current short-term rate. Put differently, longer-term yields matter. We show how to measure the zero bound's effects on yields of any maturity. Indeed, 1- and 2-year Treasury yields were surprisingly unconstrained throughout 2008 to 2010, suggesting that monetary and fiscal policy were about as effective as usual during this period. Only beginning in late 2011 did these yields become more constrained.

JEL-codes: E43 E52 E62 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/aer.104.10.3154
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Citations: View citations in EconPapers (424)

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Related works:
Working Paper: Measuring the Effect of the Zero Lower Bound on Medium- and Longer-Term Interest Rates (2014)
Working Paper: Measuring the effect of the zero lower bound on medium- and longer-term interest rates (2012)
Working Paper: Measuring the Effect of the Zero Lower Bound on Medium- and Longer-Term Interest Rates (2012)
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