Inferring the Shadow Rate from Real Activity

46 Pages Posted: 18 Sep 2017 Last revised: 8 Feb 2018

See all articles by Benjamin Garcia

Benjamin Garcia

Central Bank of Chile - Research Department

Arsenios Skaperdas

Board of Governors of the Federal Reserve System

Date Written: February 8, 2018

Abstract

We estimate a shadow rate consistent with the paths of time series capturing real activity. This allows us to quantify the real effects of unconventional monetary policy in terms of equivalent short-term interest rate movements. We find that large-scale asset purchases and forward guidance had significant real effects equivalent of up to a four percent reduction in the federal funds rate.

Keywords: effective lower bound, external instrument VAR, Kalman filter, shadow rate, unconventional monetary policy

JEL Classification: E43, E47, E52

Suggested Citation

Garcia, Benjamin and Skaperdas, Arsenios, Inferring the Shadow Rate from Real Activity (February 8, 2018). Available at SSRN: https://ssrn.com/abstract=3036977 or http://dx.doi.org/10.2139/ssrn.3036977

Benjamin Garcia

Central Bank of Chile - Research Department ( email )

Agustinas 1180 Piso 3
Santiago
Chile

Arsenios Skaperdas (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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

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