On the Empirical (Ir)Relevance of the Zero Lower Bound Constraint

The magnitude of the global financial crisis of 2007–8 and the recession it triggered ledmany central banks to lower their policy rates down values near zero, their theoretical lower bound.1 In the United States, target for the federal funds rate remained at zero for 7 years, from 2009 through December 2015. During that period, the shortterminterest stopped playing its role as an instrument ofmacroeconomic . Was the performance of the US economy affected the binding zero lower bound (ZLB)? The present paper seeks to provide answer to that question.More specifically, our goal is to evaluate merits of what we refer to as the “ZLB empirical irrelevance hypothesis” (or the “irrelevance hypothesis,” for short), that is, the hypothesis the economy’s performance was not affected by the binding ZLB , in practice, during the recent US episode. In particular, we focus two dimensions of that performance that were ex ante likely to experienced the impact of a binding ZLB: (i) the volatility of macro and (ii) the economy’s response to shocks.