Working Paper: NBER ID: w20117
Authors: Jing Cynthia Wu; Fan Dora Xia
Abstract: This paper employs an approximation that makes a nonlinear term structure model extremely tractable for analysis of an economy operating near the zero lower bound for interest rates. We show that such a model offers an excellent description of the data compared to the benchmark model and can be used to summarize the macroeconomic effects of unconventional monetary policy. Our estimates imply that the efforts by the Federal Reserve to stimulate the economy since July 2009 succeeded in making the unemployment rate in December 2013 1% lower, which is 0.13% more compared to the historical behavior of the Fed.
Keywords: Monetary Policy; Zero Lower Bound; Shadow Rate; Unconventional Policy
JEL Codes: E43; E44; E52; E58; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Shadow rate captures effects of unconventional measures (E26) | Effectiveness of monetary policy (E52) |
| Shadow rate (Y60) | Macroeconomic variables (E19) |
| Unconventional monetary policy measures (E52) | Unemployment rate (J64) |
| Federal Reserve's unconventional monetary policy measures since July 2009 (E52) | Unemployment rate (J64) |