The shadow rate as a predictor of real activity and inflation: Evidence from a data-rich environment

Hännikäinen, Jari (2016): The shadow rate as a predictor of real activity and inflation: Evidence from a data-rich environment.

Abstract

This paper examines the predictive content of the shadow rates for U.S. real activity and inflation in a data-rich environment. We find that the shadow rates contain substantial out-of-sample predictive power for inflation in non-zero lower bound and zero lower bound periods. In contrast, the shadow rates are uninformative about future real activity.

• Item Type: MPRA Paper
• Language: English
• Keywords: shadow rate; zero lower bound; unconventional monetary policy; forecasting; data-rich environment
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods ; Simulation Methods; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies

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