On the Empirical (Ir)Relevance of the Zero Lower Bound Constraint
Jordi Galí and
No 12691, CEPR Discussion Papers from C.E.P.R. Discussion Papers
We estimate a time-varying structural VAR that describes the dynamic responses of a number of U.S. macro variables to different identified shocks. We find no significant changes in the estimated responses over the period when the federal funds rate attained the zero lower bound (ZLB). This result is consistent with the hypothesis of "perfect substitutability" between conventional and unconventional monetary policies. Montecarlo simulations based on artificial time series generated from a standard New Keynesian model point to the validity of our empirical approach to detect the changes in equilibrium dynamics associated with ZLB episodes.
Keywords: liquidity trap; regime changes; time-varying structural vector-autoregressive models; unconventional monetary policies (search for similar items in EconPapers)
JEL-codes: E44 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
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