Estimating the Effective Lower Bound for the Czech National Bank’s Policy Rate

Dominika Kolcunová and Tomas Havranek

No 2018/22, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: The paper focuses on the estimation of the effective lower bound for the Czech National Bank’s policy rate. The effective lower bound is determined by the value below which holding and using cash would be preferable to deposits with negative yields. This bound is approximated based on storage, insurance and transportation costs of cash and the loss of convenience associated with cashless payments and complemented with the estimate based on interest charges which present direct costs to the bank profitability. Overall we get a mean value slightly below -1%, approxi- mately in the interval (-2.0%, -0.4%). In addition, by means of a vector autoregression we show that the potential of negative rates would not be sufficient to deliver monetary policy easing similar in its effects to the impact of the Czech National Bank’s exchange rate commitment during the years 2013–2017.

Keywords: effective lower bound; zero lower bound; negative interest rates; costs of cash; transmission of monetary policy (search for similar items in EconPapers)
JEL-codes: E43 E44 E58 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2018-09, Revised 2018-09
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-tra
References: Add references at CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Estimating the Effective Lower Bound on the Czech National Bank’s Policy Rate (2018)
Working Paper: Estimating the Effective Lower Bound on the Czech National Bank's Policy Rate (2018)
Working Paper: Estimating the Effective Lower Bound for the Czech National Bank's Policy Rate (2018)
Working Paper: Estimating the Effective Lower Bound for the Czech National Bank's Policy Rate (2018)
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