February 2018

Inferring the Shadow Rate from Real Activity

Benjamin Garcia and Arsenios Skaperdas


We estimate a shadow rate consistent with the paths of time series capturing real activity. This allows us to quantify the real effects of unconventional monetary policy in terms of equivalent short-term interest rate movements. We find that large-scale asset purchases and forward guidance had significant real effects equivalent of up to a four percent reduction in the federal funds rate.

Accessible materials (.zip)

Keywords: Kalman filter, effective lower bound, external instrument VAR, shadow rate, unconventional monetary policy

DOI: https://doi.org/10.17016/FEDS.2017.106

PDF: Full Paper

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Last Update: January 09, 2020