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A Note of Caution on Shadow Rate Estimates

Author

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  • LEO KRIPPNER
Abstract
Shadow short rate (SSR) estimates are generated regressors proposed as a proxy for policy interest rates during unconventional monetary policy (UMP) periods. However, using the Wu and Xia (2016) shadow/lower‐bound model, I show that SSR estimates can be sensitive to minor choices in their estimation. Used subsequently in a small macroeconomic model, those sensitivities lead to wide variations in the inferred effects of UMP on inflation and unemployment outcomes. Therefore, it should not be presumed that any SSR series will necessarily be quantitatively useful. Vetting SSR series allows appropriate SSR series to be retained within the suite of UMP indicators.

Suggested Citation

  • Leo Krippner, 2020. "A Note of Caution on Shadow Rate Estimates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(4), pages 951-962, June.
    • Handle: RePEc:wly:jmoncb:v:52:y:2020:i:4:p:951-962
    DOI: 10.1111/jmcb.12613
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    References listed on IDEAS

    as
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    6. Krippner, Leo, 2013. "Measuring the stance of monetary policy in zero lower bound environments," Economics Letters, Elsevier, vol. 118(1), pages 135-138.
    7. Bruno Feunou & Jean-Sébastien Fontaine & Anh Le & Christian Lundblad, 2022. "Tractable Term Structure Models," Management Science, INFORMS, vol. 68(11), pages 8411-8429, November.
    8. John W. Keating & Logan J. Kelly & A. Lee Smith & Victor J. Valcarcel, 2019. "A Model of Monetary Policy Shocks for Financial Crises and Normal Conditions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(1), pages 227-259, February.
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