On the Empirical (Ir)relevance of the Zero Lower Bound Constraint
You may be able to download this chapter for free via the Document Object Identifier.
We evaluate the hypothesis that the zero lower bound (ZLB) constraint was, in practice, irrelevant during the recent ZLB episode experienced by the US economy (2009Q1–2015Q4). We focus on two dimensions of economic performance that were ex-ante likely to have been affected by a binding ZLB: (i) the volatility of macro variables and (ii) the economy's response to shocks. Using a variety of empirical methods, we find little evidence against the irrelevance hypothesis, with our estimates suggesting that the responses of output, inflation and the long-term interest rate were hardly affected by the binding ZLB constraint. We show how a shadow interest rate rule (which we take as a proxy for forward guidance) can reconcile our empirical findings with the predictions of a simple New Keynesian model with a ZLB constraint.
-
-
Copy CitationDavide Debortoli, Jordi Galí, and Luca Gambetti, NBER Macroeconomics Annual 2019, volume 34 (University of Chicago Press, 2019), chap. 3, https://www.nber.org/books-and-chapters/nber-macroeconomics-annual-2019-volume-34/empirical-irrelevance-zero-lower-bound-constraint.Download Citation
-
Related
Published From Paper
More from the NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Health, and the Bulletin on Entrepreneurship — as well as online conference reports, video lectures, and interviews.
