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How Effective is Monetary Policy at the Zero Lower Bound? Identification Through Industry Heterogeneity
US monetary policy was constrained from 2008 to 2015 by the zero lower bound, during which the Federal Reserve would likely have lowered the federal funds rate further if it were able to. This paper uses industry-level data to examine how growth was affected. Despite the zero bound constraint, industries historically more sensitive to interest rates, such as construction, performed relatively well in comparison to industries not typically affected by monetary policy. Further evidence suggests that unconventional policy lowered the effective stance of policy below zero.
Inferring the Shadow Rate from Real Activity
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.
Substitutability of Monetary Policy Instruments
This note presents an approach to infer the magnitude of changes to the level of the policy target rate--a more commonly used metric of monetary policy actions--that would lead to approximately the same macroeconomic outcomes as induced through changes in the central bank's balance sheet.