What Does Monetary Policy Do to Long-Term Interest Rates at the Zero Lower Bound?

37 Pages Posted: 20 Jun 2011

See all articles by Jonathan H. Wright

Jonathan H. Wright

Johns Hopkins University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 2011

Abstract

The federal funds rate has been stuck at the zero bound for over two years and the Fed has turned to unconventional monetary policies, such as large scale asset purchases to provide stimulus to the economy. This paper uses a structural VAR with daily data to identify the effects of monetary policy shocks on various longer-term interest rates during this period. The VAR is identified using the assumption that monetary policy shocks are heteroskedastic: monetary policy shocks have especially high variance on days of FOMC meetings and certain speeches, while there is nothing unusual about these days from the perspective of any other shocks to the economy. A complementary high-frequency event-study approach is also used. I find that stimulative monetary policy shocks lower Treasury and corporate bond yields, but the effects die off fairly fast, with an estimated half-life of about two months.

Suggested Citation

Wright, Jonathan H., What Does Monetary Policy Do to Long-Term Interest Rates at the Zero Lower Bound? (June 2011). NBER Working Paper No. w17154. Available at SSRN: https://ssrn.com/abstract=1866648

Jonathan H. Wright (Contact Author)

Johns Hopkins University - Department of Economics ( email )

3400 Charles Street
Baltimore, MD 21218-2685
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
41
Abstract Views
897
PlumX Metrics