Comparing shadow rates in monetary policy shock identification

When the Federal Reserve's Federal Funds Rate target reached a range of 0% - 0.25% in 2009, the Federal Open Market Committee began taking unconventional monetary policy actions to stimulate the economy. In order to capture these actions in an empirical instrument, a number of measures, often referred to as shadow rates, have been derived by various researchers using alternative methods. These rates have been used in place of the federal funds rate to estimate the effects of monetary policy shocks on macroeconomic variables. This paper continues in this literature by using alternative shadow rates to derive a measure of monetary policy shocks using the methodology of Romer and Romer (AER, 2004). The estimation results of the policy equation and measures of monetary policy shocks are compared. While the shock measures at times show dramatic differences, the estimated effects on output and prices show no significant differences compared to using no change at all in the target rate. However, this may not be the case in the coming years as more Greenbook information becomes available.