scholarly journals Uncertainty at the Zero Lower Bound

2017 ◽  
Vol 9 (3) ◽  
pp. 186-221 ◽  
Author(s):  
Taisuke Nakata
Keyword(s):  
Lower Bound ◽  
Zero Lower Bound ◽  
Price Model ◽  
Exogenous Shocks ◽  
Us Economy ◽  
Conditional Expectations ◽  
The Us ◽  
Key Features ◽  
Future Path ◽  
Deep Recession

When the policy rate is at the zero lower bound (ZLB), an increase in uncertainty regarding the future path of exogenous shocks alters the conditional expectations of relevant prices facing households and firms. Accordingly, an increase in uncertainty alters consumption, inflation, and output to a greater extent when the policy rate is constrained than otherwise. Using an empirically rich sticky-price model calibrated to match key features of the US economy, I find that uncertainty can exacerbate the decline of output by about 10 percent in a deep recession that pushes the policy rate to the ZLB. (JEL E23, E31, E32, E43, E52, E58)

scholarly journals Escaping the Great Recession

2017 ◽  
Vol 107 (4) ◽  
pp. 1030-1058 ◽  
Author(s):  
Francesco Bianchi ◽  
Leonardo Melosi
Keyword(s):  
Lower Bound ◽  
Great Recession ◽  
Public Debt ◽  
Zero Lower Bound ◽  
Policy Uncertainty ◽  
The Great Recession ◽  
Us Economy ◽  
Long Run ◽  
The Us ◽  
Deep Recession

We show that policy uncertainty about how the rising public debt will be stabilized accounts for the lack of deflation in the US economy at the zero lower bound. We first estimate a Markov-switching VAR to highlight that a zero-lower-bound regime captures most of the comovements during the Great Recession: a deep recession, no deflation, and large fiscal imbalances. We then show that a microfounded model that features policy uncertainty accounts for these stylized facts. Finally, we highlight that policy uncertainty arises at the zero lower bound because of a trade-off between mitigating the recession and preserving long-run macroeconomic stability. (JEL E31, E32, E52, E62, G01, H63)

scholarly journals A Shadow Rate or a Quadratic Policy Rule? The Best Way to Enforce the Zero Lower Bound in the United States

2018 ◽  
Vol 54 (5) ◽  
pp. 2261-2292 ◽  
Author(s):  
Martin M. Andreasen ◽  
Andrew Meldrum
Keyword(s):  
Lower Bound ◽  
Term Structure ◽  
The United States ◽  
Quadratic Term ◽  
Zero Lower Bound ◽  
Term Structure Model ◽  
Conditional Expectations ◽  
Pricing Factors ◽  
Quadratic Term Structure ◽  
Reasonable Description

We study whether it is better to enforce the zero lower bound (ZLB) in models of U.S. Treasury yields using a shadow rate model or a quadratic term structure model. We show that the models achieve a similar in-sample fit and perform comparably in matching conditional expectations of future yields. However, when the recent ZLB period is included in the sample, the models’ ability to match conditional expectations away from the ZLB deteriorates because the time-series dynamics of the pricing factors change. In addition, neither model provides a reasonable description of conditional volatilities when yields are away from the ZLB.

scholarly journals Is Government Spending at the Zero Lower Bound Desirable?

2019 ◽  
Vol 11 (3) ◽  
pp. 147-173 ◽  
Author(s):  
Florin O. Bilbiie ◽  
Tommaso Monacelli ◽  
Roberto Perotti
Keyword(s):  
Lower Bound ◽  
Great Recession ◽  
Government Spending ◽  
Welfare Effects ◽  
Zero Lower Bound ◽  
Present Value ◽  
Government Consumption ◽  
High Consumption ◽  
The Us ◽  
Parameter Values

We build a medium-scale DSGE model and calibrate it to fit the main macroeconomic variables during the US Great Recession. Using it to evaluate the welfare effects of increasing government consumption at the zero lower bound beyond what was actually observed in the data, we reach three main results. First, the increase in government consumption after 2008, albeit small in present value terms, was close to optimal. Second, frontloading the same stimulus would have been welfare-improving. Third, larger welfare effects occur in our model for parameter values implying either large welfare costs of modest recessions (e.g., high consumption curvature), or outright large recessions. (JEL E12, E32, E43, E62, H50)

Domestic and Cross-border Impact of US Monetary Policy at the Zero Lower Bound

2019 ◽  
pp. 161-181
Author(s):  
Qianying Chen ◽  
Andrew Filardo ◽  
Dong He ◽  
Feng Zhu
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
Emerging Economies ◽  
Balance Sheet ◽  
Output Growth ◽  
Zero Lower Bound ◽  
Federal Funds Rate ◽  
Cross Border ◽  
Us Economy ◽  
Us Monetary Policy

This is a chapter of the domestic impact as well as cross-border spillovers of US monetary policy at the zero lower bound (ZLB) to advanced and emerging economies. We estimate the empirical relevance of the various channels of international policy transmission with a global vector error correction macroeconometric model. To address the challenge of measuring the stance of monetary policy at the ZLB, we proxy it with a shadow federal funds rate, which captures the impact of central bank balance sheet policies. We find evidence that US monetary policy was effective in stimulating the US economy. For many of the other economies, the spillovers from the quantitative easing had sizeable and persistent impacts on output growth, inflation, and equity returns. The responses in the emerging economies were rather diverse. In terms of exchange rates, a number of emerging economy currencies faced strong appreciation pressures (e.g. Malaysian ringgit and Korean won).

Prospects for the US economy to end-2017

2017 ◽  
Keyword(s):  
Labour Market ◽  
Unemployment Rate ◽  
Fiscal Stimulus ◽  
Content Type ◽  
Us Economy ◽  
Discouraged Workers ◽  
The Us ◽  
Split Personality ◽  
Deep Recession ◽  
The Imf

Subject Prospects for the US economy to end-2017. Significance The US economy has a split personality as it enters the second half of 2017. The labour market appears fully healed from the deep recession of 2008-09 -- the unemployment rate is at its lowest level in 16 years and there are fewer so-called ‘discouraged workers’ than there were in 2007 -- before the recession began. However, the IMF downgraded yesterday its 2017 and 2018 growth expectations for the US economy to 2.1% for both years from 2.3% and 2.5%, respectively, amid growing scepticism of the prospects for fiscal stimulus.

scholarly journals The Empirical Implications of the Interest-Rate Lower Bound

2017 ◽  
Vol 107 (7) ◽  
pp. 1971-2006 ◽  
Author(s):  
Christopher Gust ◽  
Edward Herbst ◽  
David López-Salido ◽  
Matthew E. Smith
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Lower Bound ◽  
Bayesian Methods ◽  
Dsge Model ◽  
Slow Recovery ◽  
Us Economy ◽  
The Us ◽  
The Interest Rate ◽  
Empirical Implications

Using Bayesian methods, we estimate a nonlinear DSGE model in which the interest-rate lower bound is occasionally binding. We quantify the size and nature of disturbances that pushed the US economy to the lower bound in late 2008 as well as the contribution of the lower bound constraint to the resulting economic slump. We find that the interest-rate lower bound was a significant constraint on monetary policy that exacerbated the recession and inhibited the recovery, as our mean estimates imply that the zero lower bound (ZLB) accounted for about 30 percent of the sharp contraction in US GDP that occurred in 2009 and an even larger fraction of the slow recovery that followed. (JEL C11, C32, E12, E23, E32, E43, E52, G01)

scholarly journals Aggregation and the PPP Puzzle in a Sticky-Price Model

2011 ◽  
Vol 101 (6) ◽  
pp. 2391-2424 ◽  
Author(s):  
Carlos Carvalho ◽  
Fernanda Nechio
Keyword(s):  
Purchasing Power Parity ◽  
Empirical Distribution ◽  
Average Frequency ◽  
Empirical Literature ◽  
Price Model ◽  
Power Parity ◽  
Price Stickiness ◽  
Exchange Rate Dynamics ◽  
Us Economy ◽  
The Us

We study the purchasing power parity (PPP) puzzle in a multisector, two-country, sticky-price model. Sectors differ in the extent of price stickiness, leading to heterogeneous sectoral real exchange rate dynamics. Deviations from PPP are more volatile and persistent than in an otherwise identical one-sector world economy with the same average frequency of price changes. Under the empirical distribution of price stickiness of the US economy, the model produces PPP deviations with a half-life of 39 months. We provide a structural interpretation of the approaches found in the empirical literature on aggregation and PPP, and reconcile its apparently conflicting findings. (JEL F31, G31)

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