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Monetary policy news and systemic risk at the zero lower bound

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  • Pavel S. Kapinos

Abstract

This paper employs a recent contribution to the construction of the shadow nominal interest rate during the zero lower bound episode and Greenbook forecasts to obtain a measure of monetary policy shocks over that time period. It then identifies monetary policy news shocks as a novel measure of the forward‐looking conduct of monetary policy in the U.S. Using the data from 1987—2010, it shows that neither monetary news nor surprises affected alternative measures of systemic risk over the full sample. However, monetary news shocks announcing future reductions in interest rates were effective in lowering most (but not all) systemic risk measures during the zero lower bound period, unlike monetary surprises.

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  • Pavel S. Kapinos, 2021. "Monetary policy news and systemic risk at the zero lower bound," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 4932-4945, October.
    • Handle: RePEc:wly:ijfiec:v:26:y:2021:i:4:p:4932-4945
    DOI: 10.1002/ijfe.2047
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    1. Georg Leitner & Teresa Hübel & Anna Wolfmayr & Manuel Zerobin, 2021. "How risky is Monetary Policy? The Effect of Monetary Policy on Systemic Risk in the Euro Area," Department of Economics Working Papers wuwp312, Vienna University of Economics and Business, Department of Economics.
    2. Kabundi, Alain & De Simone, Francisco Nadal, 2020. "Monetary policy and systemic risk-taking in the euro area banking sector," Economic Modelling, Elsevier, vol. 91(C), pages 736-758.
    3. Skouralis, Alexandros, 2021. "The role of systemic risk spillovers in the transmission of Euro Area monetary policy," ESRB Working Paper Series 129, European Systemic Risk Board.
    4. Alexandros Skouralis, 2021. "Systemic Risk Spillovers Across the EURO Area," Working Papers 326919507, Lancaster University Management School, Economics Department.
    5. George N. Apostolakis & Nikolaos Giannellis & Athanasios P. Papadopoulos, 2023. "Macro‐financial effects of monetary policy easing," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(3), pages 715-738, April.

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