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Working Paper
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.
Working Paper
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.
Working Paper
U.S. Unconventional Monetary Policy and Transmission to Emerging Market Economies
We investigate the effects of U.S. unconventional monetary policies on sovereign yields, foreign exchange rates, and stock prices in emerging market economies (EMEs), and we analyze how these effects depend on country-specifc characteristics. We find that, although EME asset prices, mainly those of sovereign bonds, responded strongly to unconventional monetary policy announcements, these responses were not outsized with respect to a model that takes into account each country's time-varying vulnerability to U.S. interest rates affected by monetary policy shocks.
Working Paper
Unconventional Monetary and Exchange Rate Policies
This paper explores the direct effects and spillovers of unconventional monetary and exchange rate policies. We find that official purchases of foreign assets have a large positive effect on a country's current account that diminishes considerably as capital mobility rises. There is an important additional effect through the lagged stock of official assets. Official purchases of domestic assets, or quantitative easing (QE), appear to have no significant effect on a country's current account when capital mobility is high, but there is a modest positive impact when capital mobility is low. The ...
Working Paper
Macroeconomic Effects of Large-Scale Asset Purchases: New Evidence
We examine the macroeconomic effect of large-scale asset purchases (LSAPs) and forward guidance (FG) using a proxy structural VAR estimated on data through 2015, where the stance of the LSAP policy is measured using primary dealer expectations of the Federal Reserve's asset holdings. Monetary policy shocks are identified using instruments constructed from event study yield changes, and additional assumptions are employed to separately identify LSAP and FG shocks. We find that unexpected expansions in the Federal Reserve's asset holdings during the ZLB period between 2008 and 2015 had ...
Working Paper
Pandemic Recession Dynamics: The Role of Monetary Policy in Shifting a U-Shaped Recession to a V-Shaped Rebound
COVID-19 has depressed economic activity around the world. The initial contraction may be amplified by the limited space for conventional monetary policy actions to support recovery implied by the low level of nominal interest rates recently. Model simulations assuming an initial contraction in output of 10 percent suggest several policy lessons. Adverse effects of constrained monetary policy space are large, changing a V-shaped rebound into a deep U-shaped recession absent large-scale Quantitative Easing (QE). Additionally, the medium-term scarring on economic potential can be large, and ...
Working Paper
Term structures of inflation expectations and real interest rates
Revised September 2016. In this paper, I use a statistical model to combine various surveys to produce a term structure of inflation expectations--inflation expectations at any horizon--and an associated term structure of real interest rates. Inflation expectations extracted from this model track realized inflation quite well, and in terms of forecast accuracy, they are at par with or superior to some popular alternatives. Looking at the period 2008.2015, I conclude that long-run inflation expectations remained anchored, and the policies of the Federal Reserve provided a large level of ...
Working Paper
The impact of unconventional monetary policy on firm financing constraints: evidence from the maturity extension program
This paper investigates the impact of unconventional monetary policy on firm financing constraints. It focuses on the Federal Reserve?s maturity extension program (MEP), which was intended to lower longer-term rates and flatten the yield curve by reducing the supply of long-term government debt. Consistent with those models that emphasize bond market segmentation and limits to arbitrage, around the MEP?s announcement, stock prices rose most sharply for those firms that are more dependent on longer-term debt. These firms also issued more long-term debt during the MEP and expanded employment ...
Working Paper
How Would US Banks Fare in a Negative Interest Rate Environment?
The effectiveness of negative interest rates as a monetary policy tool depends importantly on the response of the banking sector. This paper offers unique new insights for U.S. banks by using supervisory data to examine bank-level expectations regarding the impact of negative rates on profitability through net interest margins. The main results show that the largest U.S. banks differ significantly in how they respond to negative interest rates. The most significant channel of adverse exposure comes from the pass-through of the negative policy rate to interest rates on short-term liquid assets ...
Working Paper
How Would US Banks Fare in a Negative Interest Rate Environment?
This paper uses a unique new data set to empirically examine bank-level expectations regarding the impact of negative short-term interest rates on bank profitability through net interest margins. The results show that banks differ significantly in their views regarding how profits might be affected in a negative interest rate environment and that much of this heterogeneity can be explained by cross-bank differences in the provision of liquidity services. We find that those banks that are more active in providing liquidity to borrowers anticipate suffering reduced profitability through ...