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Federal Reserve Bank of San Francisco
FRBSF Economic Letter
The zero lower bound and longer-term yields
Eric T. Swanson

The Federal Reserve lowered its traditional monetary policy instrument, the federal funds rate, to essentially zero in December 2008. However, economic activity generally depends on interest rates with longer maturities than the overnight fed funds rate. Research shows that interest rates with maturities of two years or more were largely unconstrained by the zero lower bound until at least late 2011. This suggests that, despite the zero bound, the Fed has been able to continue conducting monetary policy through medium- and longer-term interest rates by using forward guidance and large-scale asset purchases.

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Eric T. Swanson, "The zero lower bound and longer-term yields" , Federal Reserve Bank of San Francisco, FRBSF Economic Letter, number 28, 2013.
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Keywords: Federal funds rate ; Monetary policy
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