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On the robustness of negative interest rate policies: Evidence from random trade modeling

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  • boughabi, houssam

Abstract

This paper investigates the impact of low-interest rate policies on export performance in a small open economy under stochastic inflation and interest rate volatility, using Switzerland as a natural laboratory. We develop a continuous-time stochastic framework linking exports to inflation dynamics and policy-controlled short rates and implement Monte Carlo simulations to evaluate export trajectories under uncertainty. The results show that negative interest rates significantly support export performance despite deflationary pressures, while the effectiveness of the policy is largely invariant to the persistence (memory) of interest rate volatility. By integrating numerical modelling with approximation in a multi-periodic setting, the study provides both a methodological contribution and evidence on the trade channel of unconventional monetary policy.

Suggested Citation

  • boughabi, houssam, 2026. "On the robustness of negative interest rate policies: Evidence from random trade modeling," MPRA Paper 129149, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:129149
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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