Study on the Transmission Mechanism of Monetary Policy under the Constraints of Deposit Interest Rate

This paper embeds the banking sector with endogenous leverage constraints on the standard financial accelerator model, constructs a dynamic New Keynesian model containing financial supply-demand frictions, and quantitatively analyzes the transmission mechanism and effect of monetary policy under deposit interest rate constraints. The impulse response results show that when deposit interest rates hit the lower bound, monetary policy becomes ineffective, thereby exacerbating economic fluctuations. A comprehensive analysis based on the long-term and short-term perspective of policy evaluation found that deposit interest rate constraints weakened the real interest rate and bank credit transmission mechanism of monetary policy, resulting in the insignificant effect of monetary policy on stimulating the economy. Breaking through deposit interest rate constraints is the key to the effectiveness of monetary policy. Further research results show that active fiscal policy strengthens the real interest rate and bank credit transmission mechanism of monetary policy under the constraints of deposit interest rates, has a more significant coordination effect with monetary policy, and has a strong economic expansion effect. This study has three policy implications: first, cherish the monetary policy space and avoid deposit interest rates from hitting the lower limit; second, actively promote the market-oriented reform of interest rates and vigorously unblock monetary policy transmission mechanism; third, under the dual-track interest rate system, monetary policy must focus on creating a good monetary and financial environment, fiscal policies must be more proactive, and continue to implement the policy combination of “active fiscal policy + sound monetary policy”.