Attention All “V” People

by Jeffrey P. Snider
Alhambra Partners

Around the same time Lehman Brothers and AIG became headline news in the middle of September 2008, none of the mainstream econometric models thought it was possible for the US economy to suffer so severe a shock that it would induce monetary policymakers to unleash ZIRP. Worse, the models all predicted that it would be impossible for anything to force the Fed down to zero and keep the central bank there for two years.

The zero lower bound (ZLB) is a constant bogeyman for Economists, denoting not just difficulties nominal interest rate measures have surmounting it but more so the level of economic damage (and the implied dereliction of duty) it would take for this to happen.

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