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Year: 2016 Publisher: Cambridge, Mass. National Bureau of Economic Research
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We propose a New Keynesian model with the shadow rate, which is the federal funds rate during normal times. At the zero lower bound, we establish empirically the negative shadow rate summarizes unconventional monetary policy with its resemblance to private interest rates, the Fed's balance sheet, and Taylor rule. Theoretically, we formalize our shadow rate New Keynesian model with QE and lending facilities. Our model generates the data-consistent result: a negative supply shock is always contractionary. It also salvages the New Keynesian model from the zero lower bound induced structural break.
Digital
Year: 2018 Publisher: Cambridge, Mass. National Bureau of Economic Research
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In a standard open-economy New Keynesian model, the effective lower bound causes anomalies: output and terms of trade respond to a supply shock in the opposite direction compared to normal times. We introduce a tractable two-country model to accommodate for unconventional monetary policy. In our model, these anomalies disappear. We allow unconventional policy to be partially active and asymmetric between the countries. Empirically, we find the US, Euro area, and UK have implemented a considerable amount of unconventional monetary policy: the US follows the historical Taylor rule, whereas the others have done less compared to normal times.
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