Monetary Policy in a Low Interest Rate Environment

45 Pages Posted: 21 Oct 2017

Date Written: September 11, 2017


The debate on the underlying causes of the decline of interest rates to historically low levels is ongoing both in academia and among policy makers. Several explanations have been put forward, ranging from those citing real and structural factors to those underscoring the importance of cyclical and financial phenomena. However, the empirical evidence regarding their relative importance is still limited. These different but complementary views can be framed around the concept of the natural rate of interest and the monetary transmission mechanism. The low interest rate environment that still characterizes advanced economies raises important questions regarding the implications for monetary policy in the medium- and long-run. Our work provides a systematic outline of the potential changes to monetary policy strategies that could ensue.

Keywords: interest rates, natural rate, monetary policy, secular stagnation, financial cycle

JEL Classification: E43, E52, E58, G01

Suggested Citation

Ferrero, Giuseppe and Neri, Stefano, Monetary Policy in a Low Interest Rate Environment (September 11, 2017). Bank of Italy Occasional Paper No. 392. Available at SSRN: or

Giuseppe Ferrero

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

Stefano Neri (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
+39 06 4792 2821 (Phone)

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