Monetary policy alternatives at the zero bound: an empirical assessment
Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board, 2004 - Business & Economics - 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 Bemanke benchmark Brian Sack call rate central bank central bank’s balance changes Cholesky decomposition coefﬁcients Committee’s deﬁned deﬂation dummy variable economy effects empirical episodes estimated Euroyen event study event window evidence F OMC February federal funds rate Federal Reserve ﬁgure ﬁnancial markets ﬁnd ﬁndings ﬁrst factor ﬁscal ﬁve ﬁve-year yield FOMC statements futures contract inﬂation inﬂuence investors Japanese JGB yields long-term macroeconomic market participants maturity monetary policy no-arbitrage nominal interest rate non-standard policies ofﬁcial option PATH SURPRISE percent policy actions policy decisions policy rate policy statements potential predicted quantitative easing reﬂects regression Reinhart relative supplies sample second factor short-term interest rate short-term nominal interest signiﬁcantly Speciﬁcally standard deviation STATEMENT SURPRISE statistically signiﬁcant sufﬁcient Table term structure model third factor Treasury securities Year-ahead futures rate year-ahead policy expectations yield curve zero bound ZIRP