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Fed’s Effective Lower Bound Constraint on Monetary Policy Created Uncertainty

Michael Plante, Alexander W. Richter and Nathaniel A. Throckmorton

Abstract: Uncertainty about the economy increased when the Fed reduced the federal funds rate to its effective lower bound because the constraint restricted the Fed’s ability to stabilize the economy. As a result, a much stronger negative relationship between uncertainty and economic activity emerged during and shortly after the Great Recession.

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