Outdated browser

You are using an outdated browser. DNB.nl works best with:

Macroeconomic reversal rate: evidence from a nonlinear IS-curve

Working paper 684
Working Papers

This paper examines the link between interest rates and expenditures, known as the IS-curve. Specifically, we analyse whether the reaction of spending behaviour to monetary policy changes is different in a low compared to a normal interest rate environment. We estimate the nonlinear IS-curve for the euro area and the five largest euro area countries over the period 1999q2-2019q1 and study whether the IS-curve relationship is regime-dependent. We employ smooth-transition local projections to estimate the impulse responses of the output gap, the growth of consumption, investment, and savings to a contractionary monetary policy shock under normal and low interest rate regimes. Our results point to a possible flattening of the IS-curve, related to substitution effects becoming weaker relative to income effects in a low interest rate regime. 

Keywords: IS-curve; monetary policy; low interest rate environment
JEL codes E21; E22; E43; E52

Working paper no. 684

684 - Macroeconomic reversal rate: evidence from a nonlinear IS-curve

2.2MB PDF
Download 684 - Macroeconomic reversal rate: evidence from a nonlinear IS-curve

Discover related articles