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

20 Pages Posted: 30 Oct 2012

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: November 2012

Abstract

This article uses a structural VAR with daily data to identify the effects of monetary policy shocks on various longer term interest rates since the federal funds rate has been stuck at the zero lower bound. 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 otherwise nothing unusual about these days. 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.

Suggested Citation

Wright, Jonathan H., What Does Monetary Policy Do to Long‐Term Interest Rates at the Zero Lower Bound? (November 2012). The Economic Journal, Vol. 122, Issue 564, pp. F447-F466, 2012. Available at SSRN: https://ssrn.com/abstract=2168586 or http://dx.doi.org/10.1111/j.1468-0297.2012.02556.x

Jonathan H. Wright (Contact Author)

Johns Hopkins University - Department of Economics ( email )

3400 Charles Street
Baltimore, MD 21218-2685
United States

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