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The breakdown of the money multiplier at the zero lower bound

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  • Jan Willem van den End

Abstract

Unconventional monetary policy intends to influence the economy at the zero lower bound. However, this policy becomes less effective due to a diminishing money multiplier in a liquidity trap. We show that this creates an extreme low interest rate, low multiplier regime. This insight contributes to the literature, which shows there is uncertainty over the effects of unconventional monetary policy and the precise channel through which it works.

Suggested Citation

  • Jan Willem van den End, 2014. "The breakdown of the money multiplier at the zero lower bound," Applied Economics Letters, Taylor & Francis Journals, vol. 21(13), pages 875-877, September.
    • Handle: RePEc:taf:apeclt:v:21:y:2014:i:13:p:875-877
    DOI: 10.1080/13504851.2014.894626
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    References listed on IDEAS

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    1. Michael Joyce & David Miles & Andrew Scott & Dimitri Vayanos, 2012. "Quantitative Easing and Unconventional Monetary Policy – an Introduction," Economic Journal, Royal Economic Society, vol. 122(564), pages 271-288, November.
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    Cited by:

    1. Jan Marc Berk & Jan Willem van den End, 2022. "Excess Liquidity and the Usefulness of the Money Multiplier," Credit and Capital Markets – Kredit und Kapital, Duncker & Humblot, Berlin, vol. 55(4), pages 457-488.
    2. Michał Brzoza-Brzezina, 2016. "Why may large economies suffer more at the zero lower bound?," NBP Working Papers 230, Narodowy Bank Polski.
    3. Arnold, Ivo J.M. & Soederhuizen, Beau, 2018. "The missing spillover of base expansion into monetary aggregates: Is there a puzzle?," Journal of Macroeconomics, Elsevier, vol. 55(C), pages 64-76.

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