Negative Interest Rate Policies—Initial Experiences and Assessments

Policy Papers ◽  
2017 ◽  
Vol 2017 (10) ◽  
Author(s):  
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Large Scale ◽  
Central Banks ◽  
Transmission Channel ◽  
Advanced Economies ◽  
Policy Transmission ◽  
Limited Support ◽  
Asset Purchases ◽  
Cross Country

The depth of the crisis and the weakness of the ensuing recovery led to new ways to implement monetary policy. At the onset of the crisis, central banks in several advanced economies quickly moved policy rates to zero and initiated large-scale asset purchases. In more recent years, with inflation still below target and limited support from fiscal policy, several central banks lowered their policy rates below the previous zero lower bound, embarking on so-called negative interest rate policies (NIRPs). This paper explores the implications of NIRPs for monetary policy transmission and banks’ behavior. It considers potential differences between interest rate cuts in positive versus negative territory on deposit and lending rates, as well as banks’ interest rate margins and profitability, and market functioning. The paper focuses on the bank transmission channel, where differences between positive and negative policy rates could arise. Finally, the paper reviews cross-country experiences through case studies.

Interest Rates and Macroeconomic Investment under Uncertainty

2021 ◽  
Vol 54 (3) ◽  
pp. 319-345
Author(s):  
Ansgar Belke ◽  
Matthias Göcke
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Central Banks ◽  
Monetary Policy Transmission ◽  
Policy Transmission ◽  
Rate Effects ◽  
Exact Shape ◽  
Micro Level ◽  
The Interest Rate

The interest rate is generally considered as an important driver of macroeconomic investment characterised by a particular form of path dependency, “hysteresis”. At the same time, the interest rate channel is a central ingredient of monetary policy transmission. In this context, we shed light on the issue (which currently is a matter of concern for many central banks) whether uncertainty over future interest rates at the zero lower bound hampers monetary policy transmission. As an innovation we derive the exact shape of the “hysteretic” impact of rate changes on macroeconomic investment under different sorts of uncertainty. Starting with hysteresis effects on the micro level, we apply an adequate aggregation procedure to derive the interest rate effects on a macro level. Our results may serve as a guideline for future central banks’ policies on how to stimulate investment in times of low or even zero interest rates and uncertainty.

Digital currencies enhance 21st century monetary tools

2019 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Central Banks ◽  
Content Type ◽  
The Public ◽  
Digital Currency ◽  
Advanced Economies ◽  
Severe Recession

Subject From fiat to digital currencies. Significance With the use of cash dwindling in the advanced economies, central banks are losing their only direct monetary connection to the public. At the same time, monetary policy could face meaningful limits in stimulating growth if a severe recession strikes the advanced economies as policy interest rates are already close to zero. Impacts Tech advances, combined with downgraded long-term growth, price and interest rate forecasts, draw attention to new monetary policy tools. Central bank digital currencies would have a central custodian to coordinate them, overcoming a key ‘stateless’ cryptocurrency weakness. A digital currency gives central banks a way to reflate the economy and support certain households, but there may be political obstacles.

scholarly journals On the money creation approach to banking

2021 ◽  
Author(s):  
Salomon Faure ◽  
Hans Gersbach
Keyword(s):  
Monetary Policy ◽  
Commercial Banks ◽  
Central Banks ◽  
Capital Regulation ◽  
Bank Deposits ◽  
Central Bank Money ◽  
Money Creation ◽  
Asset Purchases ◽  
Bank Equity ◽  
Bank Money

AbstractWe study today’s two-tier money creation and destruction system: Commercial banks create bank deposits (privately created money) through loans to firms or asset purchases from the private sector. Bank deposits are destroyed when households buy bank equity or when firms repay loans. Central banks create electronic central bank money (publicly created money or reserves) through loans to commercial banks. In a simple general equilibrium setting, we show that symmetric equilibria yield the first-best level of money creation and lending when prices are flexible, regardless of monetary policy and capital regulation. When prices are rigid, we identify the circumstances in which money creation is excessive or breaks down and the ones in which an adequate combination of monetary policy and capital regulation can restore efficiency. Finally, we provide a series of extensions and generalizations of the results.

scholarly journals Confidence in future monetary policy as a way to overcome the liquidity trap

2019 ◽  
Vol 5 (2) ◽  
pp. 117-135
Author(s):  
Olga Kuznetsova ◽  
Sergey Merzlyakov ◽  
Sergey Pekarski
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Large Scale ◽  
Global Financial Crisis ◽  
Time Consistency ◽  
Central Banks ◽  
Time Inconsistency ◽  
Liquidity Trap ◽  
Developed Economies ◽  
The Global Financial Crisis

The global financial crisis of 2007–2009 has changed the landscape for monetary policy. Many central banks in developed economies had to employ various unconventional policy tools to overcome a liquidity trap. These included large-scale asset purchase programs, forward guidance and negative interest rate policies. While recently, some central banks were able to return to conventional monetary policy, for many countries the effectiveness of unconventional policies remains an issue. In this paper we assess diverse practices of unconventional monetary policy with a particular focus on expectations and time consistency. The principal aspect of successful policy in terms of overcoming a liquidity trap is the confidence that interest rates will remain low for a prolonged period. However, forming such expectations faces the problem of time inconsistency of optimal policy. We discuss some directions to solve this problem.

scholarly journals Comparison of the Approach of the Czech National Bank and the European Central Bank to the Effects of the Global Financial Crisis

2021 ◽  
Vol 10 (2) ◽  
pp. 18-46
Author(s):  
Andrea Cecrdlova
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Financial Crisis ◽  
Central Bank ◽  
European Central Bank ◽  
Global Financial Crisis ◽  
Central Banks ◽  
European Central ◽  
National Bank ◽  
The Global Financial Crisis

The latest global crisis, which fully erupted in 2008, can have a significant impact on central banks credibility in the long run. During the last crisis, monetary authorities encountered zero interest rate levels and, as a result, started to use non-standard monetary policy instruments. The Czech National Bank decided to use a less standard instrument in November 2013, when it started to intervene on the foreign exchange market in order to keep the Czech currency at level 27 CZK / EUR. However, the European Central Bank also adopted a non-standard instrument, when chose a path of quantitative easing in 2015 in order to support the euro area economy by purchasing financial assets. The question remains whether the approach of Czech National Bank or the approach of European Central Bank in the crisis and post-crisis period was a more appropriate alternative. With the passage of time from the global financial crisis, it is already possible to compare the approaches of these two central banks and at least partially assess what approach was more appropriate under the given conditions. When comparing the central banks approaches to the crisis, the Czech National Bank was better, both in terms of the rate of interest rate cuts and the resulting inflation with regard to the choice of a non-standard monetary policy instrument. The recent financial crisis has revealed the application of moral hazard in practice, both on behalf of the European Central Bank and the Czech National Bank, which may have a significant impact on their credibility and independence in the coming years.

scholarly journals Negative Interest Rate Risk. Atavism or Normalization of Central Banks’ Monetary Policy

2019 ◽  
Vol 3 (342) ◽  
pp. 89-116
Author(s):  
Irena Pyka ◽  
Aleksandra Nocoń
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Central Banks ◽  
Interest Rate Risk ◽  
Interest Rate Policy ◽  
Rate Policy ◽  
Negative Interest Rate Policy

In the face of the global financial crisis, central banks have used unconventional monetary policy instruments. Firstly, they implemented the interest rate policy, lowering base interest rates to a very low (almost zero) level. However, in the following years they did not undertake normalizing activities. The macroeconomic environment required further initiatives. For the first time in history, central banks have adopted Negative Interest Rate Policy (NIRP). The main aim of the study is to explore the risk accompanying the negative interest rate policy, aiming at identifying channels and consequences of its impact on the economy. The study verifies the research hypothesis stating that the risk of negative interest rates, so far unrecognized in Theory of Interest Rate, is a consequence of low effectiveness of monetary policy normalization and may adopt systemic nature, by influencing – through different channels – the financial stability and growth dynamics of the modern world economy.

Monetary Policy Transmission Mechanism in Romania Over the Period 2001 to 2012

2019 ◽  
pp. 131-145
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Empirical Evidence ◽  
Transmission Mechanism ◽  
Communist Country ◽  
Monetary Policy Transmission ◽  
Policy Transmission ◽  
Emerging Country ◽  
Monetary Policy Transmission Mechanism ◽  
The Interest Rate

This chapter aims to provide additional empirical evidence on monetary policy transmission mechanism in Romania over the period 2001 to 2012 based on a BVAR analysis with a KoKo Minnesota/Litterman prior. The importance of the central bank is rising in Romania considering its main attribution to control the interest rate in accordance with its objectives. The empirical evidence provides a significant contribution to literature taking into account the characteristics of the selected emerging country, i.e. Romania, a former communist country in Central and Eastern Europe.

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