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Estimating Canada’s Effective Lower Bound

Jonathan Witmer () and Jing Yang ()

Staff Analytical Notes from Bank of Canada

Abstract: In 2009, the Bank of Canada set its effective lower bound (ELB) at 25 basis points (bps). Given the recent experience of Sweden, Denmark, Switzerland and the euro area with negative interest rates, we examine the economics of negative interest rates and suggest that cash storage costs are the source of a negative lower bound on interest rates. European experience demonstrates that markets can adapt to challenges associated with negative interest rates. However, given uncertainty over the precise level of the lower bound, central banks should monitor both market functioning and the demand for cash in order to identify signals that policy rates are approaching their lower bound.

Keywords: Central bank research; Monetary policy framework; Monetary policy implementation (search for similar items in EconPapers)
JEL-codes: D53 E41 E43 E58 (search for similar items in EconPapers)
Date: 2015
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Journal Article: Estimating Canada’s Effective Lower Bound (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocsan:15-2

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