Evaluating Central Banks' Tool Kit: Past, Present, and Future / Eric R. Sims, Jing Cynthia Wu.

Format:

Book

Author/Creator:

Sims, Eric R.

Contributor:

National Bureau of Economic Research.

Wu, Jing Cynthia.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26040.

NBER working paper series no. w26040

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Evaluating Central Banks' Tool Kit

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

We develop a structural DSGE model to systematically study the principal tools of unconventional monetary policy - quantitative easing (QE), forward guidance, and negative interest rate policy (NIRP) - as well as the interactions between them. To generate the same output response, the requisite NIRP and forward guidance interventions are twice as large as a conventional policy shock, which seems implausible in practice. In contrast, QE via an endogenous feedback rule can alleviate the constraints on conventional policy posed by the zero lower bound. Quantitatively, QE1-QE3 can account for two thirds of the observed decline in the "shadow" Federal Funds rate. In spite of its usefulness, QE does not come without cost. A large balance sheet has consequences for different normalization plans, the efficacy of NIRP, and the effective lower bound on the policy rate.

Notes:

Print version record

July 2019.