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Model-Based Measures of ELB Risk

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  • Taisuke Nakata

Abstract

The target range for the federal funds rate has increased a few times since its liftoff from the effective lower bound (ELB) in December 2015 and currently stands at 1 to 1-1/4 percent. According to standard macroeconomic models, ELB risk--how likely it is for the policy rate to be constrained by the ELB in the near- and medium-term future--has important implications for interest rate policy. In this note, I construct measures of ELB risk by combining survey-based projections of the U.S. economy with stochastic simulations of the FRB/US model, a large-scale model of the US economy maintained and made public by Federal Reserve staff, and I examine how the ELB risk measures have evolved in the past and how they are likely to evolve in the future.

Suggested Citation

  • Taisuke Nakata, 2017. "Model-Based Measures of ELB Risk," FEDS Notes 2017-08-23, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfn:2017-08-23
    DOI: 10.17016/2380-7172.2058
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    File URL: https://www.federalreserve.gov/econres/notes/feds-notes/model-based-measures-of-elb-risk-20170823.htm
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    Cited by:

    1. Franta, Michal, 2021. "The Likelihood Of Effective Lower Bound Events," Macroeconomic Dynamics, Cambridge University Press, vol. 25(8), pages 2058-2079, December.
    2. Peter Hördahl & Oreste Tristani, 2019. "Modelling yields at the lower bound through regime shifts," BIS Working Papers 813, Bank for International Settlements.
    3. Michael J. Lamla & Damjan Pfajfar & Lea Rendell, 2019. "Inflation and deflationary biases in inflation expectations," BIS Working Papers 789, Bank for International Settlements.

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