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Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound

56 Pages Posted: 8 Sep 2013 Last revised: 19 May 2015

Jing Cynthia Wu

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Fan Dora Xia

Bank for International Settlements (BIS) - Monetary and Economic Department

Multiple version iconThere are 2 versions of this paper

Date Written: May 18, 2015

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, unemployment, shadow rate, dynamic term structure model

JEL Classification: E43, E44, E52, E58

Suggested Citation

Wu, Jing Cynthia and Xia, Fan Dora, Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound (May 18, 2015). Chicago Booth Research Paper No. 13-77. Available at SSRN: https://ssrn.com/abstract=2321323 or http://dx.doi.org/10.2139/ssrn.2321323

Jing Cynthia Wu (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Fan Dora Xia

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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