Macroeconomic reversal rate: evidence from a nonlinear IS-curve

Jan Willem End, Paul Konietschke, Anna Samarina and Irina M. Stanga

Working Papers from DNB

Abstract: This paper examines the link between interest rates and expenditures, known as the IS-curve. Specifically, we analyse whether the reaction of spending behaviour to monetary policy changes is different in a low compared to a normal interest rate environment. We estimate the nonlinear IS-curve for the euro area and the five largest euro area countries over the period 1999q2-2019q1 and study whether the IS-curve relationship is regime-dependent. We employ smooth-transition local projections to estimate the impulse responses of the output gap, the growth of consumption, investment, and savings to a contractionary monetary policy shock under normal and low interest rate regimes. Our results point to a possible flattening of the IS-curve, related to substitution effects becoming weaker relative to income effects in a low interest rate regime.Â

Keywords: IS-curve; monetary policy; low interest rate environment (search for similar items in EconPapers)
JEL-codes: E21 E22 E43 E52 (search for similar items in EconPapers)
Date: 2020-05
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:684

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