The breakdown of the money multiplier at the zero lower bound
Jan Willem End ()
Applied Economics Letters, 2014, vol. 21, issue 13, 875-877
Unconventional monetary policy intends to influence the economy at the zero lower bound. However, this policy becomes less effective due to a diminishing money multiplier in a liquidity trap. We show that this creates an extreme low interest rate, low multiplier regime. This insight contributes to the literature, which shows there is uncertainty over the effects of unconventional monetary policy and the precise channel through which it works.
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