Monetary policy news and systemic risk at the zero lower bound

This paper employs a recent contribution to the construction of the shadow nominal interest rate during the zero lower bound episode and Greenbook forecasts to obtain a measure of monetary policy shocks over that time period. It then identifies monetary policy news shocks as a novel measure of the f...

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Bibliographic Details
Published in:International journal of finance and economics 2021-10, Vol.26 (4), p.4932-4945
Main Author: Kapinos, Pavel S.
Format: Article
Language:English
Subjects:
Federal Reserve monetary policy
Greenbook forecasts
Interest rate risk
Monetary policy
news shocks
systemic risk
zero lower bound
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Summary:This paper employs a recent contribution to the construction of the shadow nominal interest rate during the zero lower bound episode and Greenbook forecasts to obtain a measure of monetary policy shocks over that time period. It then identifies monetary policy news shocks as a novel measure of the forward‐looking conduct of monetary policy in the U.S. Using the data from 1987—2010, it shows that neither monetary news nor surprises affected alternative measures of systemic risk over the full sample. However, monetary news shocks announcing future reductions in interest rates were effective in lowering most (but not all) systemic risk measures during the zero lower bound period, unlike monetary surprises.
ISSN:1076-9307
1099-1158
DOI:10.1002/ijfe.2047