We address an important yet unanswered question: what would be the economic determinants of the implied volatility during the zero lower bound periods? To answer this question, we examine time variations of the cap market implied volatility and investigate economic determinants on slopes and curvatures of the implied volatility curves. We find that unexpected unemployment and inflation shocks play an important role in explaining implied volatility curves for different maturities. We associate negative jumps in the volatility dynamics (Jarrow, Li, & Zhao, 2007) with two unexpected macroeconomic shocks. Our results provide an important implication for practitioners who prepare future exit strategies. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 37:578–598, 2017