The Empirical Relevance of the Shadow Rate and the Zero Lower Bound

ELLINGTON, MICHAEL ORCID: 0000-0003-0264-7572 (2022) The Empirical Relevance of the Shadow Rate and the Zero Lower Bound. [Preprint]

Access the full-text of this item by clicking on the Open Access link.

Official URL: http://dx.doi.org/10.1111/jmcb.12881

Abstract

<jats:title>Abstract</jats:title><jats:p>This paper investigates the evolution of unconventional monetary policies under a binding zero lower bound (ZLB) constraint for the U.S. economy. In doing so, this study provides a comprehensive empirical assessment on the economic and statistical implications of allowing conventional and unconventional monetary policies to work in mutually exclusive union using shadow rates. Shadow rate Taylor rules and policy counterfactuals implied by time‐varying coefficient structural vector autoregression (VAR) models show: (i) one can reconcile plausible economic results using shadow rates when short‐term interest rates approach the ZLB and (ii) unconventional monetary policies are a viable response to recession and facilitate stability during economic recovery.</jats:p>

Item Type:	Preprint
Divisions:	Faculty of Humanities and Social Sciences > School of Management
Depositing User:	Symplectic Admin
Date Deposited:	19 Mar 2024 15:44
Last Modified:	19 Mar 2024 16:15
DOI:	10.1111/jmcb.12881
Open Access URL:	https://papers.ssrn.com/abstract=3244485
Related URLs:	Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3179561