WASHINGTON (Reuters) - ZIRP. ZLB. ELB.
Whatever the acronym, when the U.S. Federal Reserve dropped its policy rate to near zero on Dec. 16, 2008, to counter a full-scale economic crisis, it ushered in what the central bank’s chairman at the time, Ben Bernanke, called “the end of the old regime.”
A decade later, the full impact and import of that move are still not fully clear. But the Fed was never the same. The decision to move to zero ushered in wholesale changes to how the Fed works, from its building a massive balance sheet to adopting an explicit 2 percent inflation target and holding regular post-meeting press conferences.
A new body of research continues to explore the likelihood that trips to the “effective lower bound” will become common.
WHAT IS ZIRP?
It stands for “zero interest rate policy,” and became one of the most common acronyms used to describe the seven-year period when the Fed’s benchmark overnight lending rate was parked in a range of between zero and 0.25 percent. Policymakers also called it the “zero lower bound” and “effective lower bound.”
The Fed was not the first to employ such an aggressive response to an economic downturn. The Bank of Japan adopted ZIRP in the 1990s in response to a collapse in its real estate market that helped trigger a decade of economic stagnation. tmsnrt.rs/2QPjcTq
WHY ADOPT ZIRP?
There was nowhere else to go. From July 2007 to the fall of 2008, the Fed had trimmed its target policy rate from 5.25 percent to 1 percent.
The economy was so weak that many models indicated the appropriate interest rate
