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Macroeconomic news and the real interest rates at the zero lower bound

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  • Zhang, Ji

Abstract

Whether the real interest rates respond in a different manner to macroeconomic news at the zero lower bound (ZLB) as compared to the case away from the ZLB is essential for assessing the effectiveness of government policies and the validity of the policy implications of New Keynesian models at the ZLB. The results from analyzing “real-side” news and price news reveal that nominal rates are less sensitive to news, while real interest rates respond to some news in the opposite direction at the zero lower bound as they would do in normal times. This suggests that, at least in the short run, policies that increase inflation (e.g., fiscal expansion) are favorable to the economy at the zero lower bound; this result is consistent with the prediction of the New Keynesian models. By using an identification strategy based on heterogeneity, I find that at the ZLB, monetary policy news is less effective in affecting short- and medium-term real rates and its effect dies off faster.

Suggested Citation

  • Zhang, Ji, 2016. "Macroeconomic news and the real interest rates at the zero lower bound," Journal of Macroeconomics, Elsevier, vol. 48(C), pages 172-185.
    • Handle: RePEc:eee:jmacro:v:48:y:2016:i:c:p:172-185
    DOI: 10.1016/j.jmacro.2016.04.002
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    1. Abi Morshed, Alaa, 2017. "Three essays in applied macroeconomics and time series analysis," Other publications TiSEM f86e334b-edc8-4f46-8f91-7, Tilburg University, School of Economics and Management.

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    More about this item

    Keywords

    Zero lower bound; Monetary policy; Macroeconomic news; Real interest rate;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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