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A comment on Wu and Xia (2016) from a macroeconomic perspective

Author

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  • Leo Krippner

Abstract

Counter to the comments in Wu and Xia (2016), I show that the results from macroeconomic models are sensitive to the Shadow Short Rate (SSR) series used. That is, using a standard small macroeconomic vector autorregression model with a range of estimated SSR series obtains counterfactuals for unemployment ranging from 0.4 to 1.8 percentage points, if the Federal Funds Rate rather than the SSR series had been applied in the lower bound period. The counterfactuals for inflation range from -0.2 to -2.2 percentage points. Vetting the various SSR series from several perspectives indicates that some are more preferable than others, but there are reasons to remain cautious on the associated results.

Suggested Citation

  • Leo Krippner, 2017. "A comment on Wu and Xia (2016) from a macroeconomic perspective," CAMA Working Papers 2017-41, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2017-41
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2017-06/41_2017_leo_krippner.pdf
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    Citations

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    Cited by:

    1. Anna Sznajderska, 2021. "The Impact of Foreign Shocks on the Polish Economy," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1, pages 33-52.
    2. Claus, Edda & Claus, Iris & Krippner, Leo, 2018. "Asset market responses to conventional and unconventional monetary policy shocks in the United States," Journal of Banking & Finance, Elsevier, vol. 97(C), pages 270-282.
    3. Antonakakis, Nikolaos & Gabauer, David & Gupta, Rangan, 2019. "International monetary policy spillovers: Evidence from a time-varying parameter vector autoregression," International Review of Financial Analysis, Elsevier, vol. 65(C).
    4. Nikolaos Antonakakis & David Gabauer & Rangan Gupta, 2018. "International Monetary Policy Spillovers: Evidence from a TVP-VAR," Working Papers 201806, University of Pretoria, Department of Economics.

    More about this item

    Keywords

    shadow rates; lower bound; term structure models; unconventional monetary policy;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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