How severe has the zero lower bound constraint been?
Eric T Swanson 08 November 2014
In December 2008, the Fed lowered the federal funds rate to essentially zero and has kept it there since then. This column argues that, contrary to traditional macroeconomic thinking, monetary policy has not been severely constrained by the zero bound until mid-2011. The results imply that the Fed could have done more to ease monetary policy between 2009 and 2011. These findings could also help explain why the fiscal stimulus package adopted in 2009 did not bring the expected success.
In December 2008, the Federal Reserve’s Federal Open Market Committee lowered the federal funds rate to essentially zero, and has kept it there ever since. Because physical currency earns an interest rate of zero, it is generally impossible for the Open Market Committee to lower the federal funds rate substantially below zero, since banks would opt to hold physical currency rather than earn a significantly negative rate of return on cash balances held at the Fed. This barrier is commonly referred to as the ‘zero lower bound’.
Global crisis Monetary policy
zero lower bound, monetary policy, Federal Open Market Committee
Federal Open Market Committee forecasts: Guesses or guidance?
Peter Tillmann 23 February 2012
As the US Federal Reserve starts to increase the transparency of its decision-making process, including the release of economic forecasts and interest-rate projections, this column asks whether these projections reflect strategic motives that might make them less accurate and less useful to those wanting to predict monetary policy.
Macroeconomic policy Monetary policy
inflation, monetary policy, transparency, Federal Reserve, forecasting, Federal Open Market Committee