Brunnermeier and Koby, in this paper, show that there is a “reversal interest rate” below which a central bank prompts lenders to cut back on their lending, instead of increasing it. This threshold actually sets a limit to how long central banks should keep interest rates low.
“Lower interest rates seem to damage net interest margins and bank lending.”
“Lower interest rates seem to damage net interest margins and bank lending.”
The Reversal Interest Rate: The Effective Lower Bound of Monetary Policy
Authors: Markus K. Brunnermeier, Yann Koby
From: Princeton University
Coimbra and Rey, in this paper, show that differences in the risk attitude of financial intermediaries are important for the transmission of shocks and when interest rates are low further monetary stimulus can increase the aggregate level of risk-taking in the economy.
“As can be seen in the middle and right panels, there is a very significant heterogeneity within the financial sector in terms of time variation of leverage and its correlation with the interest rate.”
“As can be seen in the middle and right panels, there is a very significant heterogeneity within the financial sector in terms of time variation of leverage and its correlation with the interest rate.”
Financial Cycles with Heterogeneous Intermediaries
Authors: Nuno Coimbra, Hélène Rey
From: Paris School of Economics – London Business School
