Arbeitspapier
Shocking interest rate floors
We identify the dynamic causal effects of interest rate floor shocks, exploiting regular auctions of Swiss central bank debt securities (SNB Bills). A theoretical model shows that variation in the volume of, and yield on, central bank debt changes the interest rate floor. In addition, the model establishes the equivalence between central bank debt and interest-bearing reserves when reserves are ample. Based on these insights, the empirical analysis identifies an interest rate floor shock in a dynamic event study of SNB Bill auctions. A restrictive interest rate floor shock causes an increase in the money market rate, a persistent appreciation of the Swiss franc, a decline in long-term interest rates, and a decline in stock prices. We then perform policy experiments under various identifying assumptions in which the central bank raises the interest rate floor from 0% to 0.25%. Such a policy change causes a 3-6% appreciation of the Swiss franc and a 5-20% decline in stock prices.
- Language
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Englisch
- Bibliographic citation
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Series: Discussion Papers ; No. 19-01
- Classification
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Wirtschaft
Demand for Money
Interest Rates: Determination, Term Structure, and Effects
Financial Markets and the Macroeconomy
Monetary Policy
Central Banks and Their Policies
Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
- Subject
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Exit strategies
interest rate floors
central bank debt securities
interest on reserves
monetary policy shocks
identification through heteroscedasticity
- Event
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Geistige Schöpfung
- (who)
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Canetg, Fabio
Kaufmann, Daniel
- Event
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Veröffentlichung
- (who)
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University of Bern, Department of Economics
- (where)
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Bern
- (when)
-
2019
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Canetg, Fabio
- Kaufmann, Daniel
- University of Bern, Department of Economics
Time of origin
- 2019
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