De Nederlandsche Bank has published an analysis finding that interest rate changes have weaker and less visible effects on euro area growth and inflation during periods of high uncertainty. The reduced transmission is most pronounced when financial or geopolitical uncertainty is elevated, while rate increases more clearly cool economic activity and lower inflation in calmer conditions. The analysis compares the estimated effects of a 25 basis point rate increase under high and low financial, macroeconomic and geopolitical uncertainty. The results are symmetric for rate cuts and suggest that policy effects may take longer to emerge or be smaller during uncertain periods. Central banks may therefore need to respond more strongly to achieve the desired inflation effect, while using multiple uncertainty indicators and reassessing how the economy responds to previous rate decisions.
2026-09-14De Nederlandsche Bank
De Nederlandsche Bank analysis finds financial and geopolitical uncertainty weakens monetary policy transmission
De Nederlandsche Bank found that interest rate changes transmit less strongly to euro area growth and inflation when uncertainty is high, particularly financial or geopolitical uncertainty. This may require central banks to respond more strongly and assess multiple uncertainty measures when calibrating policy.