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Inferring the Shadow Rate from Real Activity

Author

Listed:
  • Benjamin Garcia
  • Arsenios Skaperdas

Abstract

We estimate a shadow rate consistent with the paths of time series capturing real activity. This allows us to quantify the real effects of unconventional monetary policy in terms of equivalent short-term interest rate movements. We find that large-scale asset purchases and forward guidance had significant real effects equivalent of up to a four percent reduction in the federal funds rate.

Suggested Citation

  • Benjamin Garcia & Arsenios Skaperdas, "undated". "Inferring the Shadow Rate from Real Activity," Finance and Economics Discussion Series 2017-106, Board of Governors of the Federal Reserve System (US).
  • Handle: RePEc:fip:fedgfe:2017-106
    DOI: 10.17016/FEDS.2017.106
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    File URL: https://www.federalreserve.gov/econres/feds/files/2017106pap.pdf
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    External instrument VAR ; Kalman filter ; Unconventional monetary policy ; Effective lower bound ; Shadow rate;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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