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A Survey-based Shadow Rate and Unconventional Monetary Policy Effects

Author

Listed:
  • Hibiki Ichiue

    (Head of Economic Research Division, Research and Statistics Department, Bank of Japan (E-mail: hibiki.ichiue@boj.or.jp))

  • Yoichi Ueno

    (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: youichi.ueno@boj.or.jp))

Abstract

Many studies estimate a shadow interest rate, which can be negative when the short-term rate is at the effective lower bound, and use it as the monetary policy indicator. This study proposes a novel method to estimate the shadow rate using survey forecasts of macroeconomic variables and allowing the shadow rate to be negative even when the short-term rate is positive. The estimated U.S. shadow rate remained negative in 2015-17, when the Federal Reserve continued to hike its policy rate but kept its holdings of assets at sizable levels. The shadow spread, which is defined as the shadow rate minus the short-term rate, is negatively correlated with the Federal Reserve fs holdings of assets, particularly mortgage-backed securities. The impact of the unconventional monetary policy on inflation was 0.5 percentage points at its peak.

Suggested Citation

  • Hibiki Ichiue & Yoichi Ueno, 2018. "A Survey-based Shadow Rate and Unconventional Monetary Policy Effects," IMES Discussion Paper Series 18-E-05, Institute for Monetary and Economic Studies, Bank of Japan.
  • Handle: RePEc:ime:imedps:18-e-05
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    File URL: https://www.imes.boj.or.jp/research/papers/english/18-E-05.pdf
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    References listed on IDEAS

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    Cited by:

    1. Wang, Ling, 2019. "Measuring the effects of unconventional monetary policy on MBS spreads: A comparative study," The North American Journal of Economics and Finance, Elsevier, vol. 49(C), pages 235-251.
    2. Nobuhiro Abe & Takuji Fueki & Sohei Kaihatsu, 2019. "Estimating a Markov Switching DSGE Model with Macroeconomic Policy Interaction," Bank of Japan Working Paper Series 19-E-3, Bank of Japan.

    More about this item

    Keywords

    Monetary Policy; Effective Lower Bound; Zero Lower Bound; Shadow Rate; Survey Forecasts;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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