Abstract
We develop a New Keynesian model with a shadow rate, which is the federal funds rate during normal times. We show the mapping between a negative shadow rate and large-scale asset purchases or lending facilities when the policy rate is constrained at its zero lower bound. We find two anomalies at the zero lower bound in the standard New Keynesian model disappear once we introduce unconventional monetary policy through the shadow rate: a negative supply shock has a negative impact on the economy, and the government multiplier is under 1.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
