Monetary Policy News and Systemic Risk at the Zero Lower Bound

30 Pages Posted: 28 Dec 2017

See all articles by Pavel S. Kapinos

Pavel S. Kapinos

Federal Reserve Bank of Dallas--Financial Industry Studies

Date Written: December 21, 2017

Abstract

This paper employs a recent contribution to the construction of the shadow nominal interest rate during the zero lower bound episode of the Great Recession of 2008-2009 and the Greenbook forecasts to obtain a measure of monetary policy shocks over that time period. It then identifies monetary policy news shocks as a novel measure of the forward-looking conduct of monetary policy in the U.S. Using the data from 1987-2010 and impulse responses from the method of local projections, it shows that contractionary monetary surprise and news shocks tended to reduce systemic risk measures over the full sample. In contrast, expansionary monetary news shocks reduced systemic risk at the zero lower bound, whereas surprises had little effect. These findings suggest that the Federal Reserve's efforts at providing expansionary forward guidance at the zero lower bound were successful in stabilizing measures of systemic risk during the Great Recession.

Keywords: C32, E44, E52, E58, G10

JEL Classification: monetary policy, news shocks, systemic risk, zero lower bound, Greenbook forecasts

Suggested Citation

Kapinos, Pavel S., Monetary Policy News and Systemic Risk at the Zero Lower Bound (December 21, 2017). Available at SSRN: https://ssrn.com/abstract=3091727 or http://dx.doi.org/10.2139/ssrn.3091727

Pavel S. Kapinos (Contact Author)

Federal Reserve Bank of Dallas--Financial Industry Studies ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

HOME PAGE: http://https://sites.google.com/site/pavelkapinos/

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