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A Note of Caution on Shadow Rate Estimates
Author(s) -
KRIPPNER LEO
Publication year - 2020
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12613
Subject(s) - proxy (statistics) , shadow (psychology) , econometrics , vetting , economics , series (stratigraphy) , inflation (cosmology) , unemployment rate , unemployment , estimation , statistics , computer science , macroeconomics , mathematics , geology , psychology , paleontology , physics , computer security , management , theoretical physics , psychotherapist
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.