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  3. Unconventional Monetary Policy and the Great Recession: Estimating the Macroeconomic Effects of a Spread Compression at the Zero Lower Bound
 

Unconventional Monetary Policy and the Great Recession: Estimating the Macroeconomic Effects of a Spread Compression at the Zero Lower Bound

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BORIS DOI
10.7892/boris.40276
Date of Publication
June 2013
Publication Type
Article
Division/Institute

Departement Volkswirt...

Author
Baumeister, Christiane
Benati, Luca
Departement Volkswirtschaftslehre
Subject(s)

300 - Social sciences...

Series
International Journal of Central Banking
ISSN or ISBN (if monograph)
1815-4654
Publisher
Federal Reserve Board
Language
English
Description
We explore the macroeconomic effects of a compression in the long-term bond yield spread within the context of the Great Recession of 2007–09 via a time-varying parameter structural VAR model. We identify a “pure” spread shock defined as a shock that leaves the policy rate unchanged, which allows us to characterize the macroeconomic consequences of a decline in the yield spread induced by central banks’ asset purchases within an environment in which the policy rate is constrained by the effective zero lower bound. Two key findings stand out. First, compressions in the long-term yield spread exert a powerful effect on both output growth and inflation. Second, conditional on available estimates of the impact of the Federal Reserve’s and the Bank of England’s asset purchase programs on long-term yield spreads, our counterfactual simulations suggest that U.S. and U.K. unconventional monetary policy actions have averted significant risks both of deflation and of output collapses comparable to those that took place during the Great Depression.
Handle
https://boris-portal.unibe.ch/handle/20.500.12422/112642
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ijcb13q2a9.pdftextAdobe PDF3.59 MBpublished
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