The Federal Reserve is Not Very Constrained by the Lower Bound on Nominal Interest Rates

17 Pages Posted: 8 Oct 2018 Last revised: 24 Aug 2024

See all articles by Eric T. Swanson

Eric T. Swanson

University of California, Irvine - Department of Economics

Date Written: October 2018

Abstract

I survey the literature on monetary policy at the zero lower bound (ZLB) and effective lower bound (ELB) to make three main points: First, the Federal Reserve’s forward guidance and large-scale asset purchases are effective monetary policy tools at the Z/ELB. Second, during the 2008–15 U.S. ZLB period, the Fed was not very constrained in its ability to influence medium- and longer-term interest rates and the economy. Third, the risks of the Fed being significantly constrained by the ELB in the future are typically greatly overstated. I conclude that the Federal Reserve is not very constrained by the lower bound on nominal interest rates.

Suggested Citation

Swanson, Eric T., The Federal Reserve is Not Very Constrained by the Lower Bound on Nominal Interest Rates (October 2018). NBER Working Paper No. w25123, Available at SSRN: https://ssrn.com/abstract=3262358

Eric T. Swanson (Contact Author)

University of California, Irvine - Department of Economics ( email )

University of California, Irvine
3151 Social Science Plaza
Irvine, CA 92697-5100
United States
(949) 824-8305 (Phone)

HOME PAGE: http://www.ericswanson.org

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
32
Abstract Views
287
PlumX Metrics