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Consumption and Money Uncertainty at the Zero Lower Bound

Author

Listed:
  • Riyad Abubaker

    (University of California, Riverside)

Abstract

With the recent financial crisis of 2008, the Federal Reserve (Fed) reduced the nominal interest rate to nearly zero. This paper examines the impact of the Zero Lower Bound (ZLB) on the uncertainty of personal consumption and money stock. To calculate the second conditional moments as a proxy for uncertainty, the paper implements a multivariate GARCH model on U.S. personal consumption and real money balance from January 1980 to December 2014. A dummy variable is added to the variance equation. Here, the dummy variable takes 1 after the Fed encounters the ZLB constraint. Our main findings demonstrate that consumption uncertainty declines; and real money uncertainty increases significantly when the economy is constrained by the zero lower bound.

Suggested Citation

  • Riyad Abubaker, 2016. "Consumption and Money Uncertainty at the Zero Lower Bound," Economics Bulletin, AccessEcon, vol. 36(1), pages 449-463.
    • Handle: RePEc:ebl:ecbull:eb-15-00406
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    References listed on IDEAS

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    Cited by:

    1. van Holle, Frederiek, 2017. "Essays in empirical finance and monetary policy," Other publications TiSEM 30d11a4b-7bc9-4c81-ad24-5, Tilburg University, School of Economics and Management.

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    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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