Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/249893 
Year of Publication: 
2021
Series/Report no.: 
ECB Working Paper No. 2620
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
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.
Subjects: 
reversal rate
monetary policy
low interest rate environment
JEL: 
E21
E22
E43
E52
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4907-1
Document Type: 
Working Paper

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