A comment on Wu and Xia (2016) from a macroeconomic perspective

Vol: 
41/2017
Author name: 
Krippner L
Year: 
2017
Month: 
June
Abstract: 

Counter to the comments in Wu and Xia (2016), I show that the results from macroeconomic models are sensitive to the Shadow Short Rate (SSR) series used. That is, using a standard small macroeconomic vector autorregression model with a range of estimated SSR series obtains counterfactuals for unemployment ranging from 0.4 to 1.8 percentage points, if the Federal Funds Rate rather than the SSR series had been applied in the lower bound period. The counterfactuals for inflation range from -0.2 to -2.2 percentage points. Vetting the various SSR series from several perspectives indicates that some are more preferable than others, but there are reasons to remain cautious on the associated results.

Publication file: 

Updated:  25 February 2016/Responsible Officer:  Crawford Engagement/Page Contact:  CAMA admin