Working Paper: CEPR ID: DP12691
Authors: Davide Debortoli; Jordi Gal; Luca Gambetti
Abstract: We estimate a time-varying structural VAR that describes the dynamic responses of a number of U.S. macro variables to different identified shocks. We find no significant changes in the estimated responses over the period when the federal funds rate attained the zero lower bound (ZLB). This result is consistent with the hypothesis of "perfect substitutability" between conventional and unconventional monetary policies. Montecarlo simulations based on artificial time series generated from a standard New Keynesian model point to the validity of our empirical approach to detect the changes in equilibrium dynamics associated with ZLB episodes.
Keywords: Regime Changes; Liquidity Trap; Unconventional Monetary Policies; Time-Varying Structural Vector-Autoregressive Models
JEL Codes: E44; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| no significant changes in the estimated responses of U.S. macroeconomic variables during the ZLB period (E39) | UMPs have been effective at circumventing the constraints imposed by the ZLB (E19) |
| responses of hours worked, productivity, and output do not exhibit significant differences between ZLB and non-ZLB periods (E23) | no significant changes in the estimated responses of U.S. macroeconomic variables during the ZLB period (E39) |
| findings contradict the predictions of standard New Keynesian models (E12) | no significant changes in the estimated responses of U.S. macroeconomic variables during the ZLB period (E39) |
| empirical approach successfully captures the dynamics of the economy under ZLB constraints (E13) | model can detect changes in equilibrium dynamics associated with ZLB episodes (E17) |