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The effect of negative policy rates on the interest-rate pass-through mechanism in the eurozone

Author

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  • Yannis Panagopoulos

    (Centre of Planning and Economic Research (KEPE), Athens, Greece)

  • Ekaterini Tsouma

    (Centre of Planning and Economic Research (KEPE), Athens, Greece)

Abstract

This paper examines the impact of the June 2014 switch to negative interest rates (NIRs) by the European Central Bank (ECB) on the operation of the eurozone interest-rate pass-through (IRPT) mechanism. We focus on the relationship between major central-bank policy rates and selected money-market rates. That link is identified as the first stage of the IRPT mechanism and its dynamics are analysed using Granger causality and cointegration techniques for the time period January 2000–June 2017. Our empirical findings indicate a feedback relationship between the ECB policy and the money-market rates in the period prior to June 2014, but that relationship is non-operative when considering only the period of NIRs.

Suggested Citation

  • Yannis Panagopoulos & Ekaterini Tsouma, 2019. "The effect of negative policy rates on the interest-rate pass-through mechanism in the eurozone," Review of Keynesian Economics, Edward Elgar Publishing, vol. 7(2), pages 247-262, April.
    • Handle: RePEc:elg:rokejn:v:7:y:2019:i:2:p247-262
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    Citations

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    Cited by:

    1. Stefano Di Bucchianico, 2021. "Negative Interest Rate Policy to Fight Secular Stagnation: Unfeasible, Ineffective, Irrelevant, or Inadequate?," Review of Political Economy, Taylor & Francis Journals, vol. 33(4), pages 687-710, October.
    2. Dušan Staniek, . "Cross-Currency Basis Spread and Its Impact on Corporate Lending Rates in the Czech Banking Sector," Prague Economic Papers, Prague University of Economics and Business, vol. 0.

    More about this item

    Keywords

    interest-rate pass-through mechanism; ECB monetary policy; dynamic cointegration;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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