Working Paper Number
E43, E44, E52, G12
Author's RePEc Short ID
We examine the channels and efficacy of monetary policy at the zero lower bound (ZLB) through the lens of shadow rate models. We compare estimates across models with various factor structures and different assumptions about interest rate forecasts. We confirm that calendar-based forward guidance discretely shifted the implied duration of the ZLB and that large scale asset purchases (LSAPs) primarily lowered term premia. However, we find that the real effects of monetary policy are more muted relative to prior estimates: a 1 standard deviation fall in the shadow rate causes a peak decline in the unemployment rate of 0.003-0.01%.
Struby, Ethan and Connolly, Michael F., "Shadow Rate Models and Monetary Policy" (2022). Department of Economics Working Paper Series. 17.