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- Title
THE LIKELIHOOD OF EFFECTIVE LOWER BOUND EVENTS.
- Authors
Franta, Michal
- Abstract
This paper provides estimates of the probability of an economy hitting its effective lower bound (ELB) on the nominal interest rate and of the expected duration of such an event for eight advanced economies. To that end, a mean-adjusted panel vector autoregression with static interdependencies and the possibility of regime change is estimated. The simulation procedure produces ELB risk estimates for both the short term, where the current phase of the business cycle plays an important role, and the medium term, where the occurrence of an ELB situation is determined mainly by the equilibrium values of macroeconomic variables. The paper also discusses the ELB event probability estimates with respect to previous approaches used in the literature.
- Subjects
REGIME change; BUSINESS cycles; INTEREST rates; PROBABILITY theory
- Publication
Macroeconomic Dynamics, 2021, Vol 48, Issue 1, p2058
- ISSN
1365-1005
- Publication type
Article
- DOI
10.1017/S1365100519000968