On the Empirical (Ir)Relevance of the Zero Lower Bound Constraint

By Davide Debortoli, J. Gaĺı, Luca Gambetti. NBER macroeconomics annual, 2019

138 citations recorded by the source corpus.

We evaluate the hypothesis that the zero lower bound (ZLB) constraint was, in practice, irrelevant during the recent ZLB episode experienced by the US economy (the 2009Q1–2015Q4 period). We focus on two dimensions of economic performance that were ex ante likely to have been affected by a binding ZLB: (i) the volatility of macro variables and (ii) the economy’s response to shocks. Using a variety of empirical methods, we find little evidence against the irrelevance hypothesis, with our estimates suggesting that the responses of output, inflation, and the long-term interest rate were hardly affected by the binding ZLB constraint. We show how a shadow interest rate rule (which we take as a proxy for forward guidance) can reconcile our empirical findings with the predictions of a simple New Keynesian model with a ZLB constraint.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/bf2230af4ddf4ecc1b362f6f4d3cee1c205aadfd

Citations in the corpus

• Business-Cycle Anatomy (2018, unknown): “But if this constraint is largely bypassed by the effective use of other policy tools, the main propagation mechanism seen in the data need not change as one moves between ZLB and non-ZLB samples; see Debortoli, Galí, and Gambetti (2019) for corroborating evidence.”