On the Empirical (Ir)Relevance of the Zero Lower Bound Constraint

Davide Debortoli, Jordi Galí and Luca Gambetti

No 25820, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The zero lower bound (ZLB) irrelevance hypothesis implies that the economy's performance is not affected by a binding ZLB constraint. We evaluate that hypothesis for the recent ZLB episode experienced by the U.S. economy (2009Q1-2015Q4). We focus on two dimensions of performance that were likely to have experienced the impact of 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, possibly as a result of the adoption and fine-tuning of unconventional monetary policies. We can reconcile our empirical findings with the predictions of a simple New Keynesian model under the assumption of a shadow interest rate rule.

JEL-codes: E44 E52 (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-bec, nep-dge, nep-mac and nep-mon
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

Published as On the Empirical (Ir)relevance of the Zero Lower Bound Constraint , Davide Debortoli, Jordi Galí, Luca Gambetti. in NBER Macroeconomics Annual 2019, volume 34 , Eichenbaum, Hurst, and Parker. 2020

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Related works:
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 (2018)
Working Paper: On the Empirical (Ir)Relevance of the Zero Lower Bound Constraint (2018)
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