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Monetary Policy Expectations at the Zero Lower Bound

Journal of money, credit and banking, 2016-10, Vol.48 (7), p.1439-1465 [Peer Reviewed Journal]

Copyright © 2016 The Ohio State University ;2016 The Ohio State University ;Copyright Ohio State University Press Oct 2016 ;ISSN: 0022-2879 ;EISSN: 1538-4616 ;DOI: 10.1111/jmcb.12338 ;CODEN: JMCBBT

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  • Title:
    Monetary Policy Expectations at the Zero Lower Bound
  • Author: BAUER, MICHAEL D. ; RUDEBUSCH, GLENN D.
  • Subjects: Asymmetry ; dynamic term structure models ; E43 ; E44 ; E52 ; Interest rates ; macro-finance ; Monetary policy ; policy liftoff ; shadow rates ; Studies ; United States
  • Is Part Of: Journal of money, credit and banking, 2016-10, Vol.48 (7), p.1439-1465
  • Description: We show that conventional dynamic term structure models (DTSMs) estimated on recent U.S. data severely violate the zero lower bound (ZLB) on nominal interest rates and deliver poor forecasts of future short rates. In contrast, shadow-rate DTSMs account for the ZLB by construction, capture the resulting distributional asymmetry of future short rates, and achieve good forecast performance. These models provide more accurate estimates of the most likely path for future monetary policy—including the timing of policy liftoff from the ZLB and the pace of subsequent policy tightening. We also demonstrate the benefits of including macroeconomic factors in a shadow-rate DTSM when yields are constrained near the ZLB.
  • Publisher: Columbus: Blackwell Publishing Ltd
  • Language: English
  • Identifier: ISSN: 0022-2879
    EISSN: 1538-4616
    DOI: 10.1111/jmcb.12338
    CODEN: JMCBBT
  • Source: Alma/SFX Local Collection
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