Working Paper

Model-Based Measures of ELB Risk

Abstract: The target range for the federal funds rate has increased a few times since its liftoff from the effective lower bound (ELB) in December 2015 and currently stands at 1 to 1-1/4 percent. According to standard macroeconomic models, ELB risk--how likely it is for the policy rate to be constrained by the ELB in the near- and medium-term future--has important implications for interest rate policy. In this note, I construct measures of ELB risk by combining survey-based projections of the U.S. economy with stochastic simulations of the FRB/US model, a large-scale model of the US economy maintained and made public by Federal Reserve staff, and I examine how the ELB risk measures have evolved in the past and how they are likely to evolve in the future.

https://doi.org/10.17016/2380-7172.2058

Bibliographic Information

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

Part of Series: FEDS Notes

Publication Date: 2017-08-23

Number: 2017-08-23