Interest rate effects weaker at low levels – Borio and Gambacorta
Effect likely due to impact on bank profits, authors say
Monetary policy appears to lose its effectiveness when rates are very low, possibly due to the detrimental impact on bank profits, according to research published by the Bank for International Settlements.
The working paper, published on February 27, studies the empirical link between policy rate movements and the supply of bank lending. Authors Claudio Borio and Leonardo Gambacorta control for a host of factors before running a regression on bank data from across advanced economies.
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