Data and code for: "The Reversal Interest Rate"

Principal Investigator(s): View help for Principal Investigator(s) Joseph Abadi, Federal Reserve Bank of Philadelphia; Markus Brunnermeier, Princeton University; Yann Koby, Brown University

Version: View help for Version V1

Name	File Type	Size	Last Modified
Dyn_RIR_deposits.mod	text/plain	9.1 KB	04/12/2023 04:30:PM
Dyn_RIR_htm.mod	text/plain	9.4 KB	04/18/2023 12:44:PM
Dyn_RIR_lending.mod	text/plain	11.3 KB	04/18/2023 12:45:PM
Dyn_RIR_nii.mod	text/plain	10 KB	04/18/2023 12:45:PM
deposit_spread_fit_RIR.m	text/x-objcsrc	1.3 KB	04/19/2023 05:56:AM
diffdiff_figures_RIR.m	text/x-matlab	2.5 KB	04/12/2023 04:29:PM
nii_figures_RIR.m	text/x-matlab	1.9 KB	04/18/2023 12:46:PM
overnight_deposits_master.csv	text/csv	10.1 KB	04/11/2023 10:03:AM
reversal_rate_finder_deposits_RIR.m	text/x-matlab	1.6 KB	04/12/2023 04:31:PM
reversal_rate_finder_htm_RIR.m	text/x-matlab	2.1 KB	04/06/2023 08:33:AM

Project Description

Summary: The reversal interest rate is the rate at which accommodative monetary policy reverses and becomes contractionary for lending. We theoretically demonstrate its existence in a macroeconomic model featuring imperfectly competitive banks that face financial frictions. When interest rates are cut too low, further monetary stimulus cuts into banks’ profit margins, depressing their net worth and curtailing their credit supply. Similarly, when interest rates are low for too long, the persistent drag on bank profitability eventually outweighs banks’ initial capital gains, also stifling credit supply. We quantify the importance of this mechanism within a calibrated New Keynesian model.

Scope of Project

Subject Terms: monetary policy; banking; zero lower bound; negative interest rates

JEL Classification:
      E43 Interest Rates: Determination, Term Structure, and Effects
      E44 Financial Markets and the Macroeconomy
      E52 Monetary Policy
      G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages

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Published Versions

V1 [2023-07-18]

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DDI 2.5

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