Unconventional Monetary Policy and the Great Recession: Estimating the Macroeconomic Effects of a Spread Compression at the Zero Lower Bound

Christiane Baumeister & Luca Benati
We explore the macroeconomic effects of a compression in the long-term bond yield spread within the context of the Great Recession of 2007-2009 via a time-varying parameter structural VAR model. We identify a ‘pure’ spread shock defined as a shock that leaves the policy rate unchanged, which allows us to characterize the macroeconomic consequences of a decline in the yield spread induced by central banks’ asset purchases within an environment in which the policy rate...
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