How Central Banks Watch the Shadow Rate

In this episode, Lucas and Luna explore the concept of the shadow rate and why it matters for monetary policy when interest rates hit zero. With central banks globally navigating post-pandemic inflation dynamics as of September ninth twenty twenty six, understanding how policymakers signal intent without moving official rates is crucial. We dive into the specific mechanics of how a negative effective lower bound changes the game for bond yields and consumer borrowing costs, using real-world examples from European and Japanese markets to illustrate these abstract concepts.

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