The Empirical Implications of the Interest-Rate Lower Bound
American Economic Review
vol. 107,
no. 7, July 2017
(pp. 1971-2006)
Abstract
Using Bayesian methods, we estimate a nonlinear DSGE model in which the interest-rate lower bound is occasionally binding. We quantify the size and nature of disturbances that pushed the US economy to the lower bound in late 2008 as well as the contribution of the lower bound constraint to the resulting economic slump. We find that the interest-rate lower bound was a significant constraint on monetary policy that exacerbated the recession and inhibited the recovery, as our mean estimates imply that the zero lower bound (ZLB) accounted for about 30 percent of the sharp contraction in US GDP that occurred in 2009 and an even larger fraction of the slow recovery that followed.Citation
Gust, Christopher, Edward Herbst, David López-Salido, and Matthew E. Smith. 2017. "The Empirical Implications of the Interest-Rate Lower Bound." American Economic Review, 107 (7): 1971-2006. DOI: 10.1257/aer.20121437Additional Materials
JEL Classification
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian
- E23 Macroeconomics: Production
- E32 Business Fluctuations; Cycles
- E43 Interest Rates: Determination, Term Structure, and Effects
- E52 Monetary Policy
- G01 Financial Crises