Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment

By Ben S. Bernanke, Vincent R. Reinhart, Brian P. Sack. 2005

824 citations recorded by the source corpus.

The success over the years in reducing inflation and, consequently, the average level of nominal interest rates has increased the likelihood that the nominal policy interest rate may become constrained by the zero lower bound. When that happens, a central bank can no longer stimulate aggregate demand by further interest-rate reductions and must rely on non-standard policy alternatives. To assess the potential effectiveness of such policies, we analyze the behavior of selected asset prices over short periods surrounding central bank statements or other types of financial or economic news and estimate no-arbitrage models of the term structure for the United States and Japan. There is some evidence that central bank communications can help to shape public expectations of future policy actions and that asset purchases in large volume by a central bank would be able to affect the price or yield of the targeted asset.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/ac039651da5249dbe43941691932d7c4b45de3c5

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Finance

Citations in the corpus

Do actions speak louder than words? the response of asset prices to monetary policy actions and statements (2004, background): “Bernanke, Reinhart, and Sack (2004) investigate the potential effectiveness of monetary policy at the zero nominal bound empirically.”
Bond Supply and Excess Bond Returns (2014, neutral): “Krishnamurthy and Vissing-Jorgensen (2012) find that when See also Bernanke et al. (2004) for a broader analysis of QE programs, and Joyce et al.”
The Financial Market Impact of Quantitative Easing (2010, methodology): “One way, therefore, of quantifying the impact is to look at the immediate reaction of gilt yields and OIS rates to announcements relating to QE purchases (a similar approach is used in Bernanke et al (2004) and Gagnon et al (2010)).”
Communication and Decision-Making by Central Bank Committees: Different Strategies, Same Effectiveness? (2005, neutral): “A broad consensus has emerged that delegating the monetary policy decision to an independent committee of individuals leads to a superior policy for a number of possible reasons, such as the ability to pool judgments of different individuals (Blinder and Morgan 2000), ability to learn from other mem”
Forecasting the Yield Curve in a Data-Rich Environment: A No-Arbitrage Factor-Augmented VAR Approach (2008, neutral): “This kind of framework thus allows to considerably reduce the dimensionality of the policy problem in a “data-rich” environment (Bernanke and Boivin (2003)).”
Large-scale asset purchases by the Federal Reserve: did they work? (2010, positive): “Bernanke, Reinhart, and Sack (2004) adopt an alternative approach to time-series analysis.”
Using monetary policy to stabilize economic activity (2009, background): “Bernanke, Reinhart, and Sack 2004 offer one of the most extensive attempts to employ effect studies and term structure models to determine if non-standard central bank open market operations have affected yields.”
The Effectiveness of Alternative Monetary Policy Tools in a Zero Lower Bound Environment (2011, neutral): “A number of previous studies have reported evidence that the relative supplies of Treasury securities of different maturities are correlated with yield spreads; see for example Roley (1982), Bernanke et al. (2004), Kuttner (2006), Gagnon et al. (2010), Doh (2010), Greenwood and Vayanos (2010), D’Ami”
Macroeconomics and the Term Structure (2012, methodology): “This means that there is a singularity whereby one cannot invert equation (16) to recover the macroeconomic variables from yields.”
Real Effects of Quantitative Easing at the Zero-Lower Bound: Structural VAR-Based Evidence from Japan (2011, background): “4See e.g. Bernanke (2002), Bernanke et al. (2004), Bernanke and Reinhart (2004), Krugman (1998) or Svensson (2003).”