Did unconventional monetary policy give the economy some “below zero” properties?

Arsenios Skaperdas, in his job market paper (same link), says yes.  I found this an ingenious method of investigation:

I examine the relationship between monetary policy and growth at the zero lower bound using industry data. I devise a simple inferential test of monetary policy’s industry effects. In the absence of the zero bound, and given previous Federal Reserve behavior, the federal funds rate would have troughed in the range of -2 to -5% since 2009. If unconventional policy failed to bridge this gap, this deficit should represent a very large contractionary monetary shock. I create a measure of historical industry interest rate sensitivity. Estimates from this measure imply that interest rate sensitive industries, such as construction, should have suffered a 4 to 10% decrease in revenues, since 2009, in comparison to insensitive industries. I do not find that this is the case. Furthermore, differences in cross-industry revenue growth rates, ranked by interest rate sensitivity, are similar to those seen in previous US economic recoveries. Finally, I quantify how much the results are due to unconventional monetary policy. I construct an implied stance of monetary policy, equivalent to an unbounded effective federal funds rate, directly from industry growth rates and macro variables. The evidence suggests that unconventional policy lowered the effective stance of policy below zero.

Skaperdas is from UC Santa Cruz, not always a strong placer in the job market, but I found this one of the more interesting papers of this year, so perhaps some of you should give him a look…


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