On the Empirical (Ir)Relevance of the Zero Lower Bound Constraint / Davide Debortoli, Jordi Galí, Luca Gambetti.

Format:

Book

Author/Creator:

Debortoli, Davide.

Contributor:

National Bureau of Economic Research.

Galí, Jordi.

Gambetti, Luca.

Series:

Working Paper Series (National Bureau of Economic Research) no. w25820.

NBER working paper series no. w25820

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

On the Empirical

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

The zero lower bound (ZLB) irrelevance hypothesis implies that the economy's performance is not affected by a binding ZLB constraint. We evaluate that hypothesis for the recent ZLB episode experienced by the U.S. economy (2009Q1-2015Q4). We focus on two dimensions of performance that were likely to have experienced the impact of a binding ZLB: (i) the volatility of macro variables and (ii) the economy's response to shocks. Using a variety of empirical methods, we find little evidence against the irrelevance hypothesis, with our estimates suggesting that the responses of output, inflation and the long-term interest rate were hardly affected by the binding ZLB constraint, possibly as a result of the adoption and fine-tuning of unconventional monetary policies. We can reconcile our empirical findings with the predictions of a simple New Keynesian model under the assumption of a shadow interest rate rule.

Notes:

Print version record

May 2019.