The effect of the low interest environment on household investment behavior

Current Project



Project Management

Prof. Dr. Alexander Kriwoluzky

Project Period

January 1, 2019 - December 31, 2020

Commissioned by

Deutsche Bundesbank

The objective of the project is to analyze the effects of long enduring low interest rates on household investment behavior, setting a special focus on the stock market participation of German and US households. In particular, we address four questions within the project. Did the low interest rate environment induced more households to enter the stock market? How do low interest rates affect the financial portfolio choices of households in general? Do we observe different effects of the zero lower bound between countries with high- and low stock market participation? What are the welfare consequences of such monetary policy?

In the first part of the project, we use household survey data (Panel Study of Income Dynamics for the US and Panel on Household Finances for Germany) and apply econometric methods to empirically evaluate the effect of the zero lower bound on portfolio decisions of households. We make use of the high frequency identification (HFI) to identify exogenous monetary policy shocks. Thereafter, we build a theoretical model to evaluate the welfare implications of the zero lower bound shocks.

DIW Team