Henrik Erikson, David Vestin, 22 January 2019

It has been suggested that the response of bank lending rates to interest rate cuts may become weaker when the policy rate passes below a certain level. This column argues that in the case of Sweden, the pass-through of policy rate cuts below zero to the economy has been reasonably good and monetary policy has been effective even at negative policy rate levels.

Joshua Aizenman, Yin-Wong Cheung, Hiro Ito, 03 December 2016

Conventional logic suggests that lowering the policy interest rate will stimulate consumption and investment while discouraging people from saving, but low interest rates may also prompt people to increase their saving to compensate for the low rate of return. Using data on 135 countries from 1995 to 2014, this column shows that a low-interest rate environment can yield different effects on private saving across country groups under different economic environments. A well-developed financial market, an ageing population, and output volatility can all contribute towards turning the relationship between interest rates and saving negative.

Daniel Gros, 27 June 2016

The business of central banks used to be profitable – they issued cash and could invest the proceeds in the assets they liked. This column argues that the ECB has turned the old business model of central banks around. Today, it earns a stream of income on its liabilities, while the returns of an increasing part of its assets go to the national central banks. This cannot be a stable arrangement.

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