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Federal Reserve Bank of Cleveland
Economic Commentary
Where would the federal funds rate be, if it could be negative?
Ellis W. Tallman
Saeed Zaman

In the wake of Great Recession, the Federal Reserve engaged in conventional monetary policy actions by reducing the federal funds rate. But soon the rate hit zero, and could go no lower. In such environments, policymakers still think in terms of where the federal funds rate should be, were it possible to go negative. To project the “unconstrained path” of the funds rate—ignoring the zero lower bound—and to identify the key underlying shocks driving that path, we employ a statistical macroeconomic forecasting model. We find that the federal funds rate would have been extremely negative during 2009-2010.

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Ellis W. Tallman & Saeed Zaman, "Where would the federal funds rate be, if it could be negative?" , Federal Reserve Bank of Cleveland, Economic Commentary, issue Oct, 2012.
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Keywords: Federal funds rate ; Forecasting
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