Monetary Policy and Real Borrowing Costs at the Zero Lower Bound

38 Pages Posted: 5 Feb 2014

See all articles by Simon Gilchrist

Simon Gilchrist

Boston University - Department of Economics; National Bureau of Economic Research (NBER)

David Lopez-Salido

Board of Governors of the Federal Reserve System

Egon Zakrajsek

Federal Reserve Board - Division of Monetary Affairs

Multiple version iconThere are 3 versions of this paper

Date Written: December 19, 2013

Abstract

This paper compares the effects of conventional monetary policy on real borrowing costs with those of the unconventional measures employed after the target federal funds rate hit the zero lower bound (ZLB). For the ZLB period, we identify two policy surprises: changes in the 2-year Treasury yield around policy announcements and changes in the 10-year Treasury yield that are orthogonal to those in the 2-year yield. The efficacy of unconventional policy in lowering real borrowing costs is comparable to that of conventional policy, in that it implies a complete pass-through of policy-induced movements in Treasury yields to comparable-maturity private yields.

Keywords: Unconventional monetary policy, LSAPs, forward guidance, term premia, corporate bond yields, mortgage interest rates

JEL Classification: E43, E52

Suggested Citation

Gilchrist, Simon and Lopez-Salido, David and Zakrajsek, Egon, Monetary Policy and Real Borrowing Costs at the Zero Lower Bound (December 19, 2013). FEDS Working Paper No. 2014-03. Available at SSRN: https://ssrn.com/abstract=2390829 or http://dx.doi.org/10.2139/ssrn.2390829

Simon Gilchrist

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

David Lopez-Salido

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Egon Zakrajsek (Contact Author)

Federal Reserve Board - Division of Monetary Affairs ( email )

20th and C Streets, NW
Washington, DC 20551
United States
202-728-5864 (Phone)
202-452-3819 (Fax)

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