The breakdown of the money multiplier at the zero lower bound

Jan Willem End

Applied Economics Letters, 2014, vol. 21, issue 13, 875-877

Abstract: 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.

Date: 2014
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DOI: 10.1080/13504851.2014.894626

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