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Measuring the stance of monetary policy in zero lower bound environments

Leo Krippner

I propose a simple framework that quantities the stance of monetary policy as a "shadow short rate" when interest rates are near the zero lower bound. The framework is shown to be a close approximation to the Black (1995) frame- work for modelling the term structure subject to a zero-lower-bound constraint. I demonstrate my framework with a one-factor model applied to Japanese data, including an intuitive economic interpretation of the results, and also discuss the extension to multiple factors.

Krippner, Leo (2013). ‘Measuring the stance of monetary policy in zero lower bound environments’, Economics Letters, Elsevier, Volume 118(1), Pages 135-138, DOI: