On several occasions during the period 2001-2003, the European Central Bank (ECB) decided to deviate from its "neutral" benchmark allotment rule, with the effect of not alleviating a temporary liquidity shortage in the banking system. This is remarkable because it implied the possibility of...

This article develops time-series models to represent three alternative, potential monetary policy regimes as monetary policy returns to normal. The first regime is a return to the high and volatile inflation rate of the 1970s. The second regime, the one that most Federal Reserve officials and...

From 2004 to 2006, the FOMC raised the target federal funds rate by 4.25 percentage points, yet long-maturity yields and forward rates fell. We consider several possible explanations for this "conundrum." The most likely, in our view, is a fall in the term premium, probably associated with some...

This paper estimates the natural real interest rate that is consistent with stable inflation and output at its potential for the euro area and Luxembourg. The natural interest rate provides a benchmark for assessing the monetary policy stance, as policy is contractionary when real interest rates...

We construct a slope factor from changes in federal funds futures of different horizons. Slope predicts stock returns at the weekly frequency: faster monetary policy easing positively predicts excess returns. Investors can achieve increases in weekly Sharpe ratios of 20% conditioning on the...

This paper investigates the effects of monetary policy announcements at the zero lower bound using Japanese data from 1998 to 2013. I find that the effect of expansionary monetary policy shocks is directly passed on to corporate bond yields, notably for high-grade corporate bond yields. However,...

We apply complexity theory to financial markets to show that excess liquidity created by the Eurosystem has led to critical transitions in the configuration of interest rates. Complexity indicators turn out to be useful signals of tipping points and subsequent regime shifts in interest rates. We...

We propose a new interest rate rule that implements the optimal equilibrium and eliminates all indeterminacy in a canonical New Keynesian model in which the zero lower bound on nominal interest rates (ZLB) is binding. The rule commits to zero nominal interest rates for a length of time that...