Measuring the stance of monetary policy in conventional and unconventional environments

Abstract

This article introduces an idea for summarizing of the stance of monetary pol-icy with quantities derived from a class of yield curve models that respect the zero lower bound constraint for interest rates. The E¤ective Monetary Stimulus ag-gregates the current and estimated expected path of interest rates relative to the neutral interest rate from the yield curve model. Unlike shadow short rates, E¤ec-tive Monetary Stimulus measures are consistent and comparable across conventional and unconventional monetary policy environments, and are less subject to variation with modeling choices, as I demonstrate with two and three factor models estimated with di¤erent data sets. Full empirical testing of the inter-relationships between Ef-fective Monetary Stimulus measures and macroeconomic data remains a topic for future work