This paper examines the importance of using nonlinear methods to account for the zero lower bound (ZLB) on the Fed's policy rate. We estimate three models with a particle filter: (1) a nonlinear model with a ZLB constraint; (2) a constrained linear model that imposes the constraint in the filter...

Macroeconomic uncertainty—the conditional volatility of the unforecastable component of a future value of a time series—shows considerable variation in the data. A typical assumption in business cycle models is that production is Cobb-Douglas. Under that assumption, this paper shows there is...