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Breaking the zero lower bound period: The shift across two unconventional policies

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  • Aksit, Derin

Abstract

The impact of unconventional monetary policies on asset prices can be broken into two distinct time periods in the US. While the impact of large-scale asset purchases was substantial on stock prices and the exchange rate before September 2011, their impact almost fully disappears afterward. On the contrary, the effects of forward guidance on asset prices grow substantially after this date. This shift could be explained by the severe illiquidity in financial markets before September 2011 and the Federal Reserve’s explicit communication regarding the initial policy rate hike afterward.

Suggested Citation

  • Aksit, Derin, 2021. "Breaking the zero lower bound period: The shift across two unconventional policies," Economics Letters, Elsevier, vol. 198(C).
    • Handle: RePEc:eee:ecolet:v:198:y:2021:i:c:s016517652030433x
    DOI: 10.1016/j.econlet.2020.109673
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    References listed on IDEAS

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    1. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
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    3. John H. Rogers & Chiara Scotti & Jonathan H. Wright, 2018. "Unconventional Monetary Policy and International Risk Premia," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(8), pages 1827-1850, December.
    4. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-856, July.
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    More about this item

    Keywords

    Large-scale asset purchases; Forward guidance; Zero lower bound; Structural break;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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