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The effects of conventional and unconventional monetary policy on the unemployment rate in the US

Author

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  • Pradyumna Dash

Abstract

Purpose - The purpose of this paper is to investigate the impact of the Federal Reserve's conventional and unconventional monetary policy shocks on the US unemployment rate. Design/methodology/approach - The authors employ a unified time-varying framework to an extensive data set from 1960 to 2019. Findings - The authors find that both conventional and unconventional monetary policy influence the unemployment rate, but the effects of unconventional monetary policy vary greatly during the first, second and third rounds of quantitative easing (dubbed QE1, QE2 and QE3, respectively). It significantly influenced the unemployment rate in QE3. However, the effects are less persistent than the effects of conventional monetary policy shocks. The impact of unconventional monetary policy transmits to the real economy through conventional interest rates, exchange rates and asset price channels. The responses of unemployment rate are smaller during QE1 and QE2 due to the rise in inflation uncertainty and economic policy uncertainty. Originality/value - The impact of the Fed's unconventional monetary policy shocks on the US unemployment rate during QE1, QE2 and QE3 is time-varying. It is explained by inflation uncertainty and real option channels.

Suggested Citation

  • Pradyumna Dash, 2023. "The effects of conventional and unconventional monetary policy on the unemployment rate in the US," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 50(7), pages 1413-1427, January.
    • Handle: RePEc:eme:jespps:jes-10-2022-0555
    DOI: 10.1108/JES-10-2022-0555
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    More about this item

    Keywords

    Unconventional monetary policy; Quantitative easing; Inflation uncertainty; Economic policy uncertainty; E43; E52; E58; E65;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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