Working Papers

2020-31 | September 2020

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Alternative Models of Interest Rate Pass-Through in Normal and Negative Territory

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In the aftermath of the Great Recession, many countries used low or negative policy rates to stimulate the economy. These policies gave rise to a rapidly growing literature that seeks to understand and quantify their impact. A fundamental step when studying the effectiveness of low and negative policy rates is to understand their transmission to loan and deposit rates. This paper proposes two models of pass-through from policy rates to loan and deposit rates that can match important stylized facts while remaining parsimonious. These models can be used to study the transition between positive and negative policy rates and to quantify the impact of negative rates on banks.

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Article Citation

Ulate, Mauricio. 2020. "Alternative Models of Interest Rate Pass-Through in Normal and Negative Territory," Federal Reserve Bank of San Francisco Working Paper 2020-31. Available at https://doi.org/10.24148/wp2020-31