A method of noise reduction of low-level input signals in a hearing aid involves applying compression to the input signal using a first compression ratio if a detected measure of amplitude modulation in the input signal is below a selected modulation level, and using a second compression ratio if the measure of amplitude modulation is above the selected modulation level. This reduces the volume of low-level steady-state noise while increasing the volume of modulated signals, e.g. speech. A hearing aid having a noise reduction system (10) has means for determining a level of amplitude modulation from a noise level and an absolute average level of an input signal, and comprises a dynamic compressor having a first compression ratio and a second compression ratio. The means for determining the level of amplitude modulation is configured to control the dynamic compressor in such a way that, below a predetermined input level, unmodulated sounds are amplified less than unmodulated sounds. In this way, low-level, unmodulated sounds are dampened by the hearing aid.