What does Monetary Policy do at the Zero Lower Bound?

The federal funds rate has been stuck at the zero bound for over two years, and the Fed has instead resorted to unconventional monetary policies, such as large scale asset purchases to provide stimulus to the economy. This paper uses a structural VAR to identify the e¤ects of monetary policy shocks on the con…guration of interest rates during this period. The VAR is identi…ed using the assumption that monetary policy shocks are heteroskedastic: monetary policy shocks have especially high variance on days of FOMC meetings and certain speeches, while there is nothing unusual about these days from the perspective of any other shocks to the economy. I also investigate measuring monetary policy shocks using intradaily asset prices in short windows around these announcements. JEL Classi…cation: C22, E43, E58. Keywords: Monetary policy, Identi…cation, Quantitative easing, Zero lower bound, Vector Autoregression, Event study. Department of Economics, Johns Hopkins University, Baltimore MD 21218; [email protected]. I am grateful to Refet Gürkaynak for helpful discussions. All errors are my sole responsibility.