The Federal Reserve Is Not Very Constrained by the Lower Bound on Nominal Interest Rates
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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Copy CitationEric T. Swanson, "The Federal Reserve Is Not Very Constrained by the Lower Bound on Nominal Interest Rates," NBER Working Paper 25123 (2018), https://doi.org/10.3386/w25123.Download Citation
Published Versions
Eric T. Swanson, 2018. "The Federal Reserve Is Not Very Constrained by the Lower Bound on Nominal Interest Rates," Brookings Papers on Economic Activity, vol 2018(2), pages 555-572. citation courtesy of 
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