EconPapers    
Economics at your fingertips  
 

A shadow rate New Keynesian model

Jing Cynthia Wu () and Ji Zhang

Journal of Economic Dynamics and Control, 2019, vol. 107, issue C, -

Abstract: We propose a tractable and coherent framework that captures both conventional and unconventional monetary policies with the shadow fed funds rate. Empirically, we document the shadow rate’s resemblance to an overall financial conditions index, various private interest rates, the Fed’s balance sheet, and the Taylor rule. Theoretically, we demonstrate the impact of unconventional policies, such as QE and lending facilities, on the economy is identical to that of a negative shadow rate, making the latter a useful summary statistic for these policies. Our model generates the data-consistent result: a negative supply shock is always contractionary. It also salvages the New Keynesian model from the zero lower bound induced structural break.

Keywords: Shadow rate; New Keynesian model; Unconventional monetary policy; Zero lower bound; QE; Lending facilities (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165188919301289
Full text for ScienceDirect subscribers only

Related works:
Working Paper: A shadow rate New Keynesian model (2017) Downloads
Working Paper: A Shadow Rate New Keynesian Model (2016) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:107:y:2019:i:c:7

DOI: 10.1016/j.jedc.2019.103728

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Haili He ().

 
Page updated 2020-05-19
Handle: RePEc:eee:dyncon:v:107:y:2019:i:c:7