On the Empirical (Ir)Relevance of the Zero Lower Bound Constraint
Davide Debortoli (),
Jordi Galí and
No 1013, Working Papers from Barcelona Graduate School of Economics
We evaluate the hypothesis that the zero lower bound (ZLB) constraint was, in practice, irrelevant during the recent ZLB episode experienced by the U.S. economy (2009Q1-2015Q4). We focus on two dimensions of economic performance that were ex-ante likely to have been affected by a binding ZLB: (i) the volatility of macro variables and (ii) the economy’s response to shocks. Using a variety of empirical methods, we find little evidence against the irrelevance hypothesis, with our estimates suggesting that the responses of output, inflation and the long-term interest rate were hardly affected by the binding ZLB constraint. We show how a shadow interest rate rule (which we take as a proxy for forward guidance) can reconcile our empirical findings with the predictions of a simple New Keynesian model with a ZLB constraint.
Keywords: regime changes; liquidity trap; unconventional monetary policies; time-varying structural vector-autoregressive models (search for similar items in EconPapers)
JEL-codes: E44 E52 (search for similar items in EconPapers)
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Chapter: On the Empirical (Ir)Relevance of the Zero Lower Bound Constraint (2019)
Working Paper: On the Empirical (Ir)Relevance of the Zero Lower Bound Constraint (2019)
Working Paper: On the empirical (ir)relevance of the zero lower bound constraint (2019)
Working Paper: On the Empirical (Ir)Relevance of the Zero Lower Bound Constraint (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1013
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