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Monetary Policy and Real Borrowing Costs at the Zero Lower Bound

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  • Gilchrist, Simon

    ()
    (Department of Economics, Boston University and NBER)

  • Lopez-Salido, J. David

    ()
    (Board of Governors of the Federal Reserve System (U.S.))

  • Zakrajsek, Egon

    ()
    (Board of Governors of the Federal Reserve System (U.S.))

Abstract

This paper compares the effects of conventional monetary policy on real borrowing costs with those of the unconventional measures employed after the target federal funds rate hit the zero lower bound (ZLB). For the ZLB period, we identify two policy surprises: changes in the 2-year Treasury yield around policy announcements and changes in the 10-year Treasury yield that are orthogonal to those in the 2-year yield. The efficacy of unconventional policy in lowering real borrowing costs is comparable to that of conventional policy, in that it implies a complete pass-through of policy-induced movements in Treasury yields to comparable-maturity private yields.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2014-3.

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Length: 38 pages
Date of creation: 19 Dec 2013
Date of revision:
Handle: RePEc:fip:fedgfe:2014-03

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Keywords: Unconventional monetary policy; LSAPs; forward guidance; term premia; corporate bond yields; mortgage interest rates;

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