Working Paper: NBER ID: w25123
Authors: Eric T. Swanson
Abstract: I survey the literature on monetary policy at the zero lower bound (ZLB) and effective lower bound (ELB) to make three main points: First, the Federal Reserve’s forward guidance and large-scale asset purchases are effective monetary policy tools at the Z/ELB. Second, during the 2008–15 U.S. ZLB period, the Fed was not very constrained in its ability to influence medium- and longer-term interest rates and the economy. Third, the risks of the Fed being significantly constrained by the ELB in the future are typically greatly overstated. I conclude that the Federal Reserve is not very constrained by the lower bound on nominal interest rates.
Keywords: monetary policy; zero lower bound; forward guidance; large-scale asset purchases
JEL Codes: E43; E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Zero lower bound (ZLB) (E43) | constraint on Federal Reserve's monetary policy capabilities (E52) |
| Effective lower bound (ELB) must bind for several quarters (C51) | noticeable effect on the economy (F69) |
| Federal Reserve's forward guidance (E52) | effectiveness as monetary policy tool (E52) |
| Federal Reserve communication (E52) | impact on market expectations (D84) |
| Large-scale asset purchases (LSAPs) (E44) | effectiveness as monetary policy tool (E52) |
| Federal Reserve's forward guidance and LSAPs (E52) | influence on the economy (F69) |
| Federal Reserve's forward guidance and LSAPs (E52) | influence on medium and long-term interest rates (E43) |