Working Paper

Inferring the Shadow Rate from Real Activity

Abstract: We estimate a shadow rate consistent with the paths of time series capturing real activity. This allows us to quantify the real effects of unconventional monetary policy in terms of equivalent short-term interest rate movements. We find that large-scale asset purchases and forward guidance had significant real effects equivalent of up to a four percent reduction in the federal funds rate.

Keywords: External instrument VAR; Kalman filter; Unconventional monetary policy; Effective lower bound; Shadow rate;

JEL Classification: E43; E47; E52;

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Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2017

Number: 2017-106