Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound

Our readers know that we have been sharply critical of the Fed's policies. Here's one reason why.

Wu and Xia of University of Chicago Booth School of Business and University of California, respectively, have some interesting conclusions in their paper, Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound. We quote their abstract: 

This paper employs an approximation that makes a nonlinear term structure model extremely tractable for analysis of an economy operating near the zero lower bound for interest rates. We show that such a model offers an excellent description of the data and can be used to summarize the macroeconomic effects of unconventional monetary policy at the zero lower bound. Our estimates imply that the efforts by the Federal Reserve to stimulate the economy since 2009 succeeded in making the unemployment rate in May 2013 0.23% lower than it otherwise would have been.

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Now think about that for a minute in terms of the risk, magnitude, cost, and global impact of the Fed's actions. Their conclusion calls into question the entire and ethereal basis of Fed policy. And we do recall the plaintive, aspiration qua argument "Think of how bad it would have been if we had done nothing!" 

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Turns out nothing is looking like a much better deal for all except those who borrowed to hold assets that were subsequently inflated by the Fed and, don't you know, funded by the wealth transfer from savers to borrowers implicit in the Zero Interest Rate Policy itself.

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If you like your zero interest rates, you can keep 'em?