The effective lower bound on a short term interest rate may not constrain a central bank's capacity to achieve its objectives if unconventional monetary policy (UMP) is powerful enough. We formalize this `irrelevance hypothesis ' using a dynamic stochastic general equilibrium model with UMP and test it empirically for  the United States and Japan using a structural vector autoregressive model that includes variables subject to occasionally binding constraints. The hypothesis is strongly rejected for both countries. However, a comparison of the impulse responses to a monetary policy shock across regimes shows that UMP has had strong delayed effects in each country .
Unconventional monetary policy (UMP) may make the effective lower bound (ELB) on the short-term interest rate irrelevant. We develop an empirical test of this `irrelevance hypothesis ,' based on a simple idea that under the hypothesis, the short rate can be excluded in any empirical model that accounts for alternative measures of monetary policy. We develop a theoretical model that underpins this hypothesis, and test it empirically for Japan and the United States using a structural vector autoregressive model with the ELB. For each country, we firmly reject the hypothesis but find that UMP has had strong delayed effects .
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The
Unconventional monetary policy (UMP) may make the
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on a short term interest rate may not constrain a central bank's capacity to achieve its objectives if unconventional monetary policy (UMP) is powerful enough. We formalize
(ELB) on the short-term interest rate irrelevant. We develop an empirical test of
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' using a dynamic stochastic general equilibrium model with UMP
,' based on a simple idea that under the hypothesis, the short rate can be excluded in any empirical model that accounts for alternative measures of monetary policy. We develop a theoretical model that underpins this hypothesis,
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Japan and
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and Japan
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that includes variables subject to occasionally binding constraints. The hypothesis is strongly rejected for both countries. However, a comparison of the impulse responses to a monetary policy shock across regimes shows
with the ELB. For each country, we firmly reject the hypothesis but find
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in each country