NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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The Federal Reserve Is Not Very Constrained by the Lower Bound on Nominal Interest Rates

Eric T. Swanson

NBER Working Paper No. 25123
Issued in October 2018
NBER Program(s):Economic Fluctuations and Growth, Monetary Economics

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.

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Document Object Identifier (DOI): 10.3386/w25123

 
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