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α: calibrated so average coauthorship-adjusted count equals average raw count
This paper investigates how the monetary policy transmission changes once the economy is in a low interest rate environment. We estimate a nonlinear model for the euro area and a panel of 10 euro-area countries over the period 1999–2019 and allow for the effects of monetary policy shocks to be state dependent. Using smooth transition local projections (STLPs), we examine the impulse responses of investment, savings, consumption, and the output gap to an expansionary monetary policy shock under normal and low interest rate regimes. We find evidence for changes in the monetary policy transmission across the two interest rate regimes. Expansionary monetary policy shocks are either less effective in stimulating aggregate demand or their impact reverses the sign in a low interest rate regime.