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Unconventional monetary policy: interest rates and low inflation. A review of literature and methods

Mariarosaria Comunale and Jonas Striaukas ()

No 406, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: In this paper, we review a range of approaches used to capture monetary policy in a period of Zero Lower Bound (ZLB). We concentrate here on methods closely linked to interest rates, which include: spreads, synthetic indices from principal component analysis, and different shadow rates. Next, we calculate these measures for the euro area, draw comparisons among different approaches, and look at the effects on main macroeconomic variables, with a special focus on inflation. By and large, the impact of unconventional monetary policy shocks on inflation is found to be significantly positive across studies and methods. Finally, we summarize the literature on the Natural Real Rate of Interest. This overview may help to assess how long low (real) interest rates in a ZLB stay in place, potentially leading to more accurate policy recommendations.

Keywords: Unconventional monetary policy; zero lower bound; shadow rates; natural interest rate; inflation (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 F42 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2017-05-12, Revised 2017-05-12
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Related works:
Working Paper: Unconventional monetary olicy: interest rates and low inflation. A review of literature and methods (2017) Downloads
Working Paper: Unconventional monetary policy: interest rates and low inflation: A review of literature and methods (2017) Downloads
Working Paper: Unconventional Monetary Policy: Interest Rates and Low Inflation. A Review of Literature and Methods (2017) Downloads
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