How Likely Is a Return to the Zero Lower Bound?

Thomas Lubik, Christian Matthes and David A. Price

Richmond Fed Economic Brief, 2018, issue September

Abstract: The likelihood of returning to near-zero interest rates is relevant to policymakers in considering the path of future interest rates. At the zero lower bound, the Fed can no longer lower rates and thus can respond to a contraction only through alternative policy measures, such as quantitative easing. Recent research at the Richmond Fed has used repeated simulations of the U.S. economy to estimate the probability of such an occurrence over the next ten years. The estimated probability of returning to the zero lower bound one or more times during this period is approximately one chance in four.

Keywords: interest rates; nominal interest rates; VAR; vector autoregression model (search for similar items in EconPapers)
Date: 2018
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