A Time?Series Model of Interest Rates with the Effective Lower Bound

Modeling nominal interest rates requires to take into account the effective lower bound (ELB). We propose a flexible time-series approach that includes “shadow rate”—a notional rate identical actual except when ELB binds . apply this trend-cycle decomposition of and macro-economic variables generates competitive interest-rate forecasts. Our estimates real-rate trend have edged down somewhat in recent decades, but not significantly so. identify monetary policy shocks from shadow-rate surprises find they were particularly at stimulating economic activity during period.