Measuring the Effect of the Zero Lower Bound on Monetary Policy


Carlos Carvalho

Eric Hsu

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2016-06 | December 1, 2016

The Zero Lower Bound (ZLB) on interest rates is often regarded as an important constraint on monetary policy. To assess how the ZLB affected the Fed’s ability to conduct policy, we estimate the effects of Fed communication on yields of different maturities in the pre-ZLB and ZLB periods. Before the ZLB period, communication affects both short and long-dated yields. In contrast, during the ZLB period, the reaction of yields to communication is concentrated in longer-dated yields. Our findings support the view that the ZLB did not put such a critical constraint on monetary policy, as the Fed retained some ability to affect long-term yields through communication.

Article Citation

Carvalho, Carlos, Eric Hsu, and Fernanda Nechio. 2016. “Measuring the Effect of the Zero Lower Bound on Monetary Policy,” Federal Reserve Bank of San Francisco Working Paper 2016-06. Available at

About the Author
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Fernanda Nechio is a vice president in the Economic Research Department of the Federal Reserve Bank of San Francisco. Learn more about Fernanda Nechio