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Discussion Paper Details

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Title: Monetary Policy and Real Borrowing Costs at the Zero Lower Bound

Author(s): Simon Gilchrist, J David L�pez-Salido and Egon Zakrajsek

Publication Date: May 2014

Keyword(s): corporate bond yields, forward guidance, LSPAs, mortgage interest rates, term premia and Unconventional monetary policy

Programme Area(s): International Macroeconomics

Abstract: This paper compares the effects of conventional monetary policy on real borrowing costs with those of the unconventional measures employed after the target federal funds rate hit the zero lower bound (ZLB). For the ZLB period, we identify two policy surprises: changes in the 2-year Treasury yield around policy announcements and changes in the 10-year Treasury yield that are orthogonal to those in the 2-year yield. The efficacy of unconventional policy in lowering real borrowing costs is comparable to that of conventional policy, in that it implies a complete pass-through of policy-induced movements in Treasury yields to comparable-maturity private yields.

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Bibliographic Reference

Gilchrist, S, L�pez-Salido, J and Zakrajsek, E. 2014. 'Monetary Policy and Real Borrowing Costs at the Zero Lower Bound'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9971