IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-03528874.html

Downward interest rate rigidity

Author

Listed:
  • Grégory Levieuge

    (LEO - Laboratoire d'Économie d'Orleans [2021-2022] - UO - Université d'Orléans - UT - Université de Tours, Banque de France)

  • Jean-Guillaume Sahuc

    (Banque de France, UPN - Université Paris Nanterre)

Abstract

Empirical evidence suggests that bank lending rates are downward rigid: banks tend to adjust their rates more slowly and less completely to short-term market rates decreases than to increases. We investigate the macroeconomic consequences of this downward interest rate rigidity by introducing asymmetric bank lending rate adjustment costs in a macrofinance dynamic stochastic general equilibrium model. Calibrating the model to the euro area economy, we find that the difference in the initial response of GDP to positive and negative economic shocks of similar amplitude can reach up to 25%. This means that a central bank would have to cut its policy rate much more to obtain a symmetric medium-run impact on GDP. We also show that downward interest rate rigidity is stronger when policy rates are stuck at their effective lower bound, further disrupting monetary policy transmission. These findings imply that neglecting asymmetry in retail interest rate adjustments may yield misguided monetary policy decisions.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Grégory Levieuge & Jean-Guillaume Sahuc, 2021. "Downward interest rate rigidity," Post-Print hal-03528874, HAL.
    • Handle: RePEc:hal:journl:hal-03528874
    DOI: 10.1016/j.euroecorev.2021.103787
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a
    for a similarly titled item that would be available.

    Other versions of this item:

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Downward Interest Rate Rigidity
      by Christian Zimmermann in NEP-DGE blog on 2021-10-11 17:06:39

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mattia Girotti & Guillaume Horny & Jean-Guillaume Sahuc, 2022. "Lost in Negative Territory? Search for Yield!," Working papers 877, Banque de France.
    2. Boungou, Whelsy & Hubert, Paul, 2021. "The channels of banks’ response to negative interest rates," Journal of Economic Dynamics and Control, Elsevier, vol. 131(C).
    3. Stephen Kho, 2023. "Deposit market concentration and monetary transmission: evidence from the euro area," Working Papers 790, DNB.
    4. Kho, Stephen, 2024. "Deposit market concentration and monetary transmission: evidence from the euro area," Working Paper Series 2896, European Central Bank.
    5. Altunbas, Yener & Avignone, Giuseppe & Kok, Christoffer & Pancaro, Cosimo, 2023. "Euro area banks’ market power, lending channel and stability: the effects of negative policy rates," Working Paper Series 2790, European Central Bank.
    6. Kho, Stephen, 2025. "Deposit market concentration and monetary transmission: Evidence from the euro area," European Economic Review, Elsevier, vol. 173(C).
    7. Paul Hubert & Rose Portier, 2025. "The Signaling Effects of Tightening and Easing Monetary Policy," Working Papers hal-05097460, HAL.
    8. Jbir, Hamdi, 2024. "Impact of monetary and macroprudential policy shocks on systemic risk: what role for the central bank governance ?," MPRA Paper 125437, University Library of Munich, Germany, revised 2025.
    9. Jude, Cristina & Levieuge, Grégory, 2025. "Doubling down: The synergy of CCyB release and monetary policy easing," Journal of International Money and Finance, Elsevier, vol. 155(C).
    10. Patrick Gruning, 2025. "The Economic Impact of the Deposit Interest Rate Adjustment Speed," Working Papers 2025/05, Latvijas Banka.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-03528874. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.