Monetary Policy Alternatives at the Zero Bound: An Empirical AssessmentDivisions of Research & Statistics and Monetary Affairs, Federal Reserve Board, 2004 - Deflation (Finance) - 86 pages "The success over the years in reducing inflation and, consequently, the average level of nominal interest rates has increased the likelihood that the nominal policy interest rate may become constrained by the zero lower bound. When that happens, a central bank can no longer stimulate aggregate demand by further interest-rate reductions and must rely on "non-standard" policy alternatives. To assess the potential effectiveness of such policies, we analyze the behavior of selected asset prices over short periods surrounding central bank statements or other types of financial or economic news and estimate "noarbitrage" models of the term structure for the United States and Japan. There is some evidence that central bank communications can help to shape public expectations of future policy actions and that asset purchases in large volume by a central bank would be able to affect the price or yield of the targeted asset"--Abstract. |
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analysis announcement asset prices Bank of Japan bank's balance sheet basis points benchmark Bernanke BOJ's Brian Sack call rate central bank central bank's balance changes Cholesky decomposition commitment current policy surprise deflation dummy variable economy effects empirical episodes estimated Euroyen event study event window evidence February federal funds rate Federal Reserve financial markets five-year yield FOMC decisions FOMC statements futures contract inflation influence investors Japanese JGB yields Liquidity Trap long-term macroeconomic market expectations market participants maturity monetary policy no-arbitrage nominal interest rate non-standard policies option PATH SURPRISE percent policy actions policy decisions policy rate policy statements potential predicted prices of risk quantitative easing policy regression Reinhart relative supplies sample second factor short-term interest rate short-term nominal interest significant standard deviation STATEMENT SURPRISE Table ten-year Treasury yields term structure model third factor Treasury securities Year-ahead futures rate year-ahead policy expectations yield curve zero bound ZIRP