Measuring the stance of monetary policy in zero lower bound environments

Release date
01/08/2012
Reference
DP2012/04
Author
Leo Krippner
Published as

Krippner, Leo (2013). ‘Measuring the stance of monetary policy in zero lower bound environments’, Economics Letters, Elsevier, Volume 118(1), Pages 135-138, DOI: https://doi.org/10.1016/j.econlet.2012.10.011.

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.