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The zero lower bound and endogenous uncertainty

Michael Plante (), Alexander Richter () and Nathaniel Throckmorton

No 1405, Working Papers from Federal Reserve Bank of Dallas

Abstract: This paper documents a strong negative correlation between macroeconomic uncertainty and real GDP growth since the Great Recession. Prior to that event the correlation was weak, even when conditioning on recessions. At the same time, many central banks reduced their policy rate to its zero lower bound (ZLB), which we contend contributed to the strong correlation between macroeconomic uncertainty and real GDP growth. To test that theory, we use a model where the ZLB occasionally binds. The model roughly matches the correlation in the data?away from the ZLB the correlation is weak but strongly negative when the ZLB binds.

Keywords: monetary policy; uncertainty; economic activity; zero lower bound (search for similar items in EconPapers)
JEL-codes: E32 E47 E58 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2014-05-21
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
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Journal Article: The Zero Lower Bound and Endogenous Uncertainty (2018) Downloads
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DOI: 10.24149/wp1405

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