Econometrica: Nov 2021, Volume 89, Issue 6

Identification at the Zero Lower Bound

https://doi.org/10.3982/ECTA17388
p. 2855-2885

Sophocles Mavroeidis

I show that the zero lower bound (ZLB) on interest rates can be used to identify the causal effects of monetary policy. Identification depends on the extent to which the ZLB limits the efficacy of monetary policy. I propose a simple way to test the efficacy of unconventional policies, modeled via a “shadow rate.” I apply this method to U.S. monetary policy using a three‐equation structural vector autoregressive model of inflation, unemployment, and the Federal Funds rate. I reject the null hypothesis that unconventional monetary policy has no effect at the ZLB, but find some evidence that it is not as effective as conventional monetary policy.



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Supplement to "Identification at the Zero Lower Bound"

This document contains additional derivations, computational details, and additional simulation results to supplement the main paper. All equations in this Appendix are prefixed by “S.”. Numbers without prefix refer to objects in the main paper.

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Supplement to "Identification at the Zero Lower Bound"

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