The Federal Reserve Is Not Very Constrained by the Lower Bound on Nominal Interest Rates

Eric T. Swanson

45 citations0/0 files storedBrookings Papers on Economic Activity

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Monetary Policy and Economic Impact Economic theories and models European Monetary and Fiscal Policies

Abstract

I survey the literature on monetary policy at the zero lower bound (ZLB) and effective lower bound (ELB) to make three main points: First, the Federal Reserve's forward guidance and large-scale asset purchases are effective monetary policy tools at the Z/ELB.Second, during the 2008-15 U.S. ZLB period, the Fed was not very constrained in its ability to influence medium-and longer-term interest rates and the economy.Third, the risks of the Fed being significantly constrained by the ELB in the future are typically greatly overstated.I conclude that the Federal Reserve is not very constrained by the lower bound on nominal interest rates.

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References

2016Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound 2011When Is the Government Spending Multiplier Large?1998It's Baaack: Japan's Slump and the Return of the Liquidity Trap 2012The Aggregate Demand for Treasury Debt 2004Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements 2007The U.S. Treasury yield curve: 1961 to the present 2011The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy 2012Macroeconomic Effects of Federal Reserve Forward Guidance

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