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Riyad Abubaker
''Consumption and Money Uncertainty at the Zero Lower Bound''
( 2016, Vol. 36 No.1 )
With the recent financial crisis of 2008, the Federal Reserve (Fed) reduced the nominal interest rate to nearly zero. This paper examines the impact of the Zero Lower Bound (ZLB) on the uncertainty of personal consumption and money stock. To calculate the second conditional moments as a proxy for uncertainty, the paper implements a multivariate GARCH model on U.S. personal consumption and real money balance from January 1980 to December 2014. A dummy variable is added to the variance equation. Here, the dummy variable takes 1 after the Fed encounters the ZLB constraint. Our main findings demonstrate that consumption uncertainty declines; and real money uncertainty increases significantly when the economy is constrained by the zero lower bound.
Keywords: Consumption, Money, Multivariate GARCH
JEL: C1 - Econometric and Statistical Methods: General
E4 - Money and Interest Rates: General
Manuscript Received : Jun 23 2015 Manuscript Accepted : Mar 17 2016

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