Arbeitspapier
What to expect from the lower bound on interest rates: Evidence from derivatives prices
This paper analyzes the effects of the lower bound for interest rates on the distributions of expectations for future inflation and interest rates. We study a stylized New Keynesian model where the policy instrument is subject to a lower bound to motivate the empirical analysis. Two equilibria emerge: In the "target equilibrium", policy is unconstrained most or all of the time, whereas in the "liquidity trap equilibrium", policy is mostly or always constrained. We use options data on future interest rates and inflation to study whether the decrease in the natural rate of interest leads to forecast densities consistent with the theoretical model. We develop a lower bound indicator that captures the effects of the lower bound on the distribution of interest rates. Qualitatively, we find that the evidence is largely consistent with the theoretical predictions in the target equilibrium and find no evidence in favor of the liquidity trap equilibrium. Quantitatively, while the lower bound has a sizable effect on the distribution of future interest rates, its impact on forecast densities for inflation is relatively modest.
- Sprache
-
Englisch
- Erschienen in
-
Series: Staff Report ; No. 865
- Klassifikation
-
Wirtschaft
Interest Rates: Determination, Term Structure, and Effects
Monetary Policy
Asset Pricing; Trading Volume; Bond Interest Rates
- Thema
-
zero lower bound
inflation expectations
monetary policy
multiple equilibria
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Mertens, Thomas M.
Williams, John C.
- Ereignis
-
Veröffentlichung
- (wer)
-
Federal Reserve Bank of New York
- (wo)
-
New York, NY
- (wann)
-
2018
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:41 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Mertens, Thomas M.
- Williams, John C.
- Federal Reserve Bank of New York
Entstanden
- 2018
Ähnliche Objekte (12)
What to Expect from Basel III?
What we may expect from work
What future generations might expect from us
What to expect from MySQL 8.0?
Learning from the "Energiewende" : what developing countries expect from Germany
What to Expect from the 2020 Gas Package
Models for Interest Rates and Interest Rate Derivatives
The Valuation of Interest Rate Derivatives: Empirical Evidence from the Spanish Market
Expect the unexpected: fulminant myocardial cytotoxic Injury from Trabectedin
The interest rate effects of government bond purchases away from the lower bound
How large an effect can we expect from school reforms?
How large an effect can we expect from school reforms?
What to Expect from Basel III?
What we may expect from work
What future generations might expect from us
What to expect from MySQL 8.0?
Learning from the "Energiewende" : what developing countries expect from Germany
What to Expect from the 2020 Gas Package
Models for Interest Rates and Interest Rate Derivatives
The Valuation of Interest Rate Derivatives: Empirical Evidence from the Spanish Market
Expect the unexpected: fulminant myocardial cytotoxic Injury from Trabectedin
The interest rate effects of government bond purchases away from the lower bound
How large an effect can we expect from school reforms?
How large an effect can we expect from school reforms?
What to Expect from Basel III?
What we may expect from work
What future generations might expect from us
What to expect from MySQL 8.0?
Learning from the "Energiewende" : what developing countries expect from Germany
What to Expect from the 2020 Gas Package
Models for Interest Rates and Interest Rate Derivatives
The Valuation of Interest Rate Derivatives: Empirical Evidence from the Spanish Market
Expect the unexpected: fulminant myocardial cytotoxic Injury from Trabectedin
The interest rate effects of government bond purchases away from the lower bound
How large an effect can we expect from school reforms?