On December 12, 2019, Fed in Print will introduce its new platform for discovering content. Please direct your questions to Anna Oates
Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
The Empirical Implications of the Interest-Rate Lower Bound
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 U.S. 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 U.S. GDP that occurred in 2009 and an even larger fraction of the slow recovery that followed.
Cite this item
Christopher J. Gust & J. David Lopez-Salido & Matthew E. Smith & Edward Herbst, The Empirical Implications of the Interest-Rate Lower Bound, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2012-83, 2012, revised Jan 2016.
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This item with handle RePEc:fip:fedgfe:2012-83
is also listed on EconPapers
For corrections, contact Ryan Wolfslayer ()