Finance and Economics Discussion Series (FEDS)
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.
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Keywords: Kalman filter, effective lower bound, external instrument VAR, shadow rate, unconventional monetary policy
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