The effects of negative interest rates on the monetary transmission mechanism – The case of Switzerland

Abstract

In this article we study how the monetary transmission mechanism (the process through
which monetary policy affects aggregate demand and inflation) alters when the nominal
interest rates become negative, through the case of Switzerland. The results of our models
show that the effectiveness of the interest rate channel of the transmission mechanism
decreases at negative nominal interest rates. However, considering the limits of the
models and the unique factors affecting the monetary transmission in Switzerland, clear
conclusions about the effectiveness of the interest rate channel cannot be made.