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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.

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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.

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