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Where would the federal funds rate be, if it could be negative?

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  • Ellis W. Tallman
  • Saeed Zaman

Abstract

In the wake of Great Recession, the Federal Reserve engaged in conventional monetary policy actions by reducing the federal funds rate. But soon the rate hit zero, and could go no lower. In such environments, policymakers still think in terms of where the federal funds rate should be, were it possible to go negative. To project the ?unconstrained path? of the funds rate?ignoring the zero lower bound?and to identify the key underlying shocks driving that path, we employ a statistical macroeconomic forecasting model. We find that the federal funds rate would have been extremely negative during 2009-2010.

Suggested Citation

  • Ellis W. Tallman & Saeed Zaman, 2012. "Where would the federal funds rate be, if it could be negative?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Oct.
    • Handle: RePEc:fip:fedcec:y:2012:i:oct12:n:2012-15
    DOI: 10.26509/frbc-ec-201215
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    References listed on IDEAS

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    Cited by:

    1. Brent Meyer & Saeed Zaman, 2019. "The usefulness of the median CPI in Bayesian VARs used for macroeconomic forecasting and policy," Empirical Economics, Springer, vol. 57(2), pages 603-630, August.
    2. Mikhail V. Oet & Kalle Lyytinen, 2017. "Does Financial Stability Matter to the Fed in Setting US Monetary Policy?," Review of Finance, European Finance Association, vol. 21(1), pages 389-432.

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