The likelihood of effective lower bound events
No 731, BIS Working Papers from Bank for International Settlements
This paper provides estimates of the probability of an economy hitting its effective lower bound (ELB) on the nominal interest rate and of the expected duration of such an event for eight advanced economies. To that end, a mean-adjusted panel vector autoregression with static interdependencies and the possibility of regime change is estimated. The simulation procedure produces ELB risk estimates for both the short term, where the current phase of the business cycle plays an important role, and the medium term, where the occurrence of an ELB situation is determined mainly by the equilibrium values of macroeconomic variables. The paper also discusses the ELB event probability estimates with respect to previous approaches used in the literature.
Keywords: effective lower bound; ELB risk; mean adjustment; panel VAR; regime change (search for similar items in EconPapers)
JEL-codes: E37 E52 C11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ets, nep-mac and nep-mon
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Working Paper: The Likelihood of Effective Lower Bound Events (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:731
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