On the Empirical (Ir)Relevance of the Zero Lower Bound Constraint
Luca Gambetti,
Jordi Galà and
Davide Debortoli
Authors registered in the RePEc Author Service: Jordi Galí
No 1013, Working Papers from Barcelona School of Economics
Abstract:
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: liquidity trap; unconventional monetary policies; regime changes; time-varying structural vector-autoregressive models (search for similar items in EconPapers)
JEL-codes: E44 E52 (search for similar items in EconPapers)
Date: 2018-01
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (12)
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Related works:
Journal Article: On the Empirical (Ir)Relevance of the Zero Lower Bound Constraint (2020) 
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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