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Monetary Policy Transmission and Effective Lower Limit of Monetary Policy Interest Rates

Milan Šimáček

Politická ekonomie, 2021, vol. 2021, issue 2, 227-253

Abstract: The central banks of developed countries and those in the region of Central Europe responded to the global financial crisis of 2008 and subsequent economic recession by considerably easing monetary conditions and using new monetary policy tools. One of those tools was the entry into the so far uncharted territory of negative interest rates. The passage of some years after the inception of these new tools has allowed the emergence of new empirical literature, which addresses their effects and effectiveness. The primary objective of this paper is to examine and summarize the empirical literature that deals with the effective lower limit of interest rates, especially in relation to the banking sector and bank interest margins. We then use empirical findings from other countries and apply them to the Czech Republic and draw conclusions for the future monetary policy of the CNB. Our results confirm that the CNB has got enough manoeuvring room even in the area of negative interest rates, which it can take advantage of either for the purpose of price stability, or for more effective management of FX operations.

Keywords: money and interest rates; financial markets and macroeconomy; monetary policy; central banking and supply of money and credit; central banks and their policies; financial institutions; financial markets; banks (search for similar items in EconPapers)
JEL-codes: E40 E44 E5 E52 E58 G20 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.18267/j.polek.1310

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Handle: RePEc:prg:jnlpol:v:2021:y:2021:i:2:id:1310:p:227-253