Macroeconomic reversal rate in a low interest rate environment

Arbeitspapier

This paper investigates how the monetary policy transmission channels change once the economy is in a low interest rate environment. We estimate a nonlinear model for the euro area and its five largest countries over the period 1999q2-2019q1 and allow for the effects of monetary policy shocks to be state dependent. Using smooth transition local projections, we examine the impulse responses of investment, savings, consumption, and the output gap to an expansionary monetary policy shock under normal and low interest rate regimes. We find evidence for a macroeconomic reversal rate related to the substitution effects becoming weaker relative to the income effects in a low interest rate regime. In this regime the effects of monetary policy shocks are either less powerful or reverse sign compared with a normal rate regime.

Object Details

• ISBN: 978-92-899-4907-1
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2620

Classification and Topics

• Classification: Wirtschaft ; Macroeconomics: Consumption; Saving; Wealth ; Investment; Capital; Intangible Capital; Capacity ; Interest Rates: Determination, Term Structure, and Effects ; Monetary Policy
• Subject: reversal rate ; monetary policy ; low interest rate environment

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Van den End, Jan-Willem ; Konietschke, Paul ; Samarina, Anna ; Stanga, Irina M.
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2021

Further information

• DOI: doi:10.2866/718041
• Handle: http://hdl.handle.net/10419/249893
• Last update: 10.03.2025, 11:43 AM CET