On the robustness of negative interest rate policies: Evidence from random trade modeling

Houssam Boughabi

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates the impact of low-interest rate policies on export performance in a small open economy under stochastic inflation and interest rate volatility, using Switzerland as a natural laboratory. We develop a continuous-time stochastic framework linking exports to inflation dynamics and policy-controlled short rates and implement Monte Carlo simulations to evaluate export trajectories under uncertainty. The results show that negative interest rates significantly support export performance despite deflationary pressures, while the effectiveness of the policy is largely invariant to the persistence (memory) of interest rate volatility. By integrating numerical modelling with approximation in a multi-periodic setting, the study provides both a methodological contribution and evidence on the trade channel of unconventional monetary policy.

Keywords: interest rates; export dynamics; inflation volatility; stochastic modeling; monetary policy; Switzerland (search for similar items in EconPapers)
JEL-codes: C15 E52 F41 (search for similar items in EconPapers)
Date: 2026-05-19
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:129149

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