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Monetary policy in a low interest rate environment

Stefano Neri () and Giuseppe Ferrero ()

No 392, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: The debate on the underlying causes of the decline of interest rates to historically low levels is ongoing both in academia and among policy makers. Several explanations have been put forward, ranging from those citing real and structural factors to those underscoring the importance of cyclical and financial phenomena. However, the empirical evidence regarding their relative importance is still limited. These different but complementary views can be framed around the concept of the natural rate of interest and the monetary transmission mechanism. The low interest rate environment that still characterizes advanced economies raises important questions regarding the implications for monetary policy in the medium- and long-run. Our work provides a systematic outline of the potential changes to monetary policy strategies that could ensue.

Keywords: interest rates; natural rate; monetary policy; secular stagnation; financial cycle (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 G01 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2017-09
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