Macroeconomics Seminar Series No. 4– Professor James Morley (The University of Sydney)

A Structural Measure of the Shadow Federal Funds Rate

Abstract: We propose a shadow policy interest rate based on an estimated structural model that accounts for the zero lower bound. The lower bound constraint, if expected to bind, is contractionary and increases the shadow rate compared to an unconstrained systematic policy response. By contrast, forward guidance and other unconventional policies that extend the expected duration of zero-interest-rate policy are expansionary and decrease the shadow rate. By quantifying these distinct effects, our structural shadow federal funds rate better captures the stance of monetary policy given economic conditions than a shadow rate based only on the term structure of interest rates.


Start Date
End Date
Fred Gruen Economics Seminar Room (H.W. Arndt Bldg 25A)
Professor James Morley (The University of Sydney)