March 2021 issue contents
Alternative Models of Interest Rate Pass-Through in Normal and Negative Territory

Mauricio Ulate
Federal Reserve Bank of San Francisco


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.

JEL Code: E32, E44, E52, E58, G21.

Full article (PDF, 32 pages, 822 kb)