Estimating the Expected Duration of the Zero Lower Bound in DSGE Models with Forward Guidance
37 Pages Posted: 28 Jul 2014
Date Written: July 2014
Motivated by the increasing use of forward guidance, we consider DSGE models in which the central bank holds the policy rate fixed for an extended period of time. Private agents’ beliefs about how long the fixed-rate regime will last influences current output and inflation. We estimate the structural for US data and infer the expected duration of the zero lower bound regime. Our results suggest that the average expected duration is around 3 quarters and has varied significantly since the onset of the zero lower bound regime, with changes that can be related to the Federal Reserve’s forward guidance.
Keywords: zero lower bound, forward guidance
JEL Classification: E52, E58
Suggested Citation: Suggested Citation