On the empirical (ir)relevance of the zero lower bound constraint

Davide Debortoli, Jordi Galí and Luca Gambetti

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: We evaluate the hypothesis that the zero lower bound (ZLB) constraint was, in practice, irrelevant during the recent ZLB episode experienced by the U.S. economy (2009Q1-2015Q4). We focus on two dimensions of economic performance that were ex-ante likely to have been affected by 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. We show how a shadow interest rate rule (which we take as a proxy for forward guidance) can reconcile our empirical findings with the predictions of a simple New Keynesian model with a ZLB constraint.

Keywords: Regime changes; liquidity trap; unconventional monetary policies; time-varying structural vector-autoregressive models. (search for similar items in EconPapers)
JEL-codes: E44 E52 (search for similar items in EconPapers)
Date: 2018-01, Revised 2019-06
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

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Related works:
Journal Article: On the Empirical (Ir)Relevance of the Zero Lower Bound Constraint (2020)
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 (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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