Negative interest rates: absolutely everything you need to know

Since the great recession, a large number of advanced economies have been stuck with low growth and low levels of investment and inflation. Attempting to regain growth, central banks have taken increasingly forceful monetary measures. Of these, perhaps the most controversial and least understood is negative interest rates.

The central bank of Denmark was the first to go below zero, in 2012. To the surprise of many, it did not result in stress in the financial system. In 2014, several of Europe’s central banks followed suit. Two years later, so did the Bank of Japan.

Setting interest rates to below zero is often viewed as an unconventional policy, but it can actually be seen as a continuation of the perfectly normal monetary policy practice of moving the short-term interest rate in response to fluctuations in the economy. There is a limit to how low interest rates can go, but it turns out that this limit is not zero and we have not reached it yet.

Σχετικές Αναρτήσεις

• Robert Skidelsky, (2016), “The False Promise of Negative Interest Rates”, Project Syndicate, 24 Μαϊου
• Stiglitz, Joseph, (2016), “What’s Wrong With Negative Interest Rates?”, Social Europe, 13 Απριλίου