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Measuring the stance of monetary policy in zero lower bound environments

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Abstract

I propose a simple framework that quantities the stance of monetary policy as a "shadow short rate" when interest rates are near the zero lower bound. The framework is shown to be a close approximation to the Black (1995) framework for modelling the term structure subject to a zero-lower-bound constraint. I demonstrate my framework with a one-factor model applied to Japanese data, including an intuitive economic interpretation of the results, and also discuss the extension to multiple factors.

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File URL: http://www.rbnz.govt.nz/research_and_publications/discussion_papers/2012/dp12_04.pdf
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Bibliographic Info

Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2012/04.

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Length: 13 p.
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:nzb:nzbdps:2012/04

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  1. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, Econometric Society, vol. 53(2), pages 385-407, March.
  2. Leo Krippner, 2012. "Modifying Gaussian term structure models when interest rates are near the zero lower bound," Reserve Bank of New Zealand Discussion Paper Series, Reserve Bank of New Zealand DP2012/02, Reserve Bank of New Zealand.
  3. Kim, Don H. & Singleton, Kenneth J., 2012. "Term structure models and the zero bound: An empirical investigation of Japanese yields," Journal of Econometrics, Elsevier, Elsevier, vol. 170(1), pages 32-49.
  4. Antulio N. Bomfim, 2003. "Interest rates as options: assessing the markets' view of the liquidity trap," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2003-45, Board of Governors of the Federal Reserve System (U.S.).
  5. Krippner, Leo, 2013. "Measuring the stance of monetary policy in zero lower bound environments," Economics Letters, Elsevier, Elsevier, vol. 118(1), pages 135-138.
  6. Black, Fischer, 1995. " Interest Rates as Options," Journal of Finance, American Finance Association, American Finance Association, vol. 50(5), pages 1371-76, December.
  7. Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, Elsevier, vol. 5(2), pages 177-188, November.
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Cited by:
  1. Leo Krippner, 2012. "Measuring the stance of monetary policy in zero lower bound environments," CAMA Working Papers, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University 2012-35, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Leo Krippner, 2014. "Measuring the stance of monetary policy in conventional and unconventional environments," CAMA Working Papers, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University 2014-06, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  3. Leo Krippner, 2013. "A tractable framework for zero-lower-bound Gaussian term structure models," CAMA Working Papers, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University 2013-49, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Jens H.E. Christensen & Glenn D. Rudebusch, 2013. "Estimating shadow-rate term structure models with near-zero yields," Working Paper Series, Federal Reserve Bank of San Francisco 2013-07, Federal Reserve Bank of San Francisco.
  5. Leo Krippner, 2013. "Efficient Jacobian evaluations for estimating zero lower bound term structure models," CAMA Working Papers, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University 2013-77, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  6. Leo Krippner, 2012. "A model for interest rates near the zero lower bound: An overview and discussion," Reserve Bank of New Zealand Analytical Notes series, Reserve Bank of New Zealand AN2012/05, Reserve Bank of New Zealand.

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