tag:blogger.com,1999:blog-4159906646513306121.post3908062881556634678..comments2023-11-19T20:38:50.237-08:00Comments on Economic Logic: How to measure the monetary stance when the interest rate is zeroEconomic Logicianhttp://www.blogger.com/profile/10171296292101248614noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-4159906646513306121.post-86131788206711212372012-10-31T19:24:39.394-07:002012-10-31T19:24:39.394-07:00Thanks for your comments on my research – it’s a n...Thanks for your comments on my research – it’s a nice summary of the issue and the paper. It’s worth adding the important caveat that the effective economic stimulus associated with the shadow short rate becomes more complex when it moves below zero, because the negative shadow interest rates implied for short maturities are obviously not actual rates available to the economy. For example, easing from 5% to 4% gives more economic stimulus (because interest rates across the entire yield curve move down) than easing from -4% to -5% (because short-maturity interest rates can’t move any lower). I have some additional work in the pipeline to help quantify that concept (essentially a liquidity effect as a function of the shadow short rate), or some related discussion is available in “A model for interest rates near the zero lower bound: An overview and discussion”, Reserve Bank of New Zealand Analytical Note, 2012/05, pp. 6-8. But in any case, the Fed can still "ease" (and have been doing something, as you mention) even after the policy rate became constrained by the zero lower bound. Cheers, LeoAnonymousnoreply@blogger.com