Negative Interest Rates
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Author | : Andreas Jobst |
Publisher | : International Monetary Fund |
Total Pages | : 48 |
Release | : 2016-08-10 |
Genre | : Business & Economics |
ISBN | : 1475524471 |
More than two years ago the European Central Bank (ECB) adopted a negative interest rate policy (NIRP) to achieve its price stability objective. Negative interest rates have so far supported easier financial conditions and contributed to a modest expansion in credit, demonstrating that the zero lower bound is less binding than previously thought. However, interest rate cuts also weigh on bank profitability. Substantial rate cuts may at some point outweigh the benefits from higher asset values and stronger aggregate demand. Further monetary accommodation may need to rely more on credit easing and an expansion of the ECB’s balance sheet rather than substantial additional reductions in the policy rate.
Author | : Luís Brandão Marques |
Publisher | : International Monetary Fund |
Total Pages | : 84 |
Release | : 2021-03-03 |
Genre | : Business & Economics |
ISBN | : 1513570080 |
This paper focuses on negative interest rate policies and covers a broad range of its effects, with a detailed discussion of findings in the academic literature and of broader country experiences.
Author | : Ruchir Agarwal |
Publisher | : International Monetary Fund |
Total Pages | : 89 |
Release | : 2019-04-29 |
Genre | : Business & Economics |
ISBN | : 1484398777 |
The experience of the Great Recession and its aftermath revealed that a lower bound on interest rates can be a serious obstacle for fighting recessions. However, the zero lower bound is not a law of nature; it is a policy choice. The central message of this paper is that with readily available tools a central bank can enable deep negative rates whenever needed—thus maintaining the power of monetary policy in the future to end recessions within a short time. This paper demonstrates that a subset of these tools can have a big effect in enabling deep negative rates with administratively small actions on the part of the central bank. To that end, we (i) survey approaches to enable deep negative rates discussed in the literature and present new approaches; (ii) establish how a subset of these approaches allows enabling negative rates while remaining at a minimum distance from the current paper currency policy and minimizing the political costs; (iii) discuss why standard transmission mechanisms from interest rates to aggregate demand are likely to remain unchanged in deep negative rate territory; and (iv) present communication tools that central banks can use both now and in the event to facilitate broader political acceptance of negative interest rate policy at the onset of the next serious recession.
Author | : Jacques Ninet |
Publisher | : Emerald Group Publishing |
Total Pages | : 224 |
Release | : 2020-11-26 |
Genre | : Business & Economics |
ISBN | : 1839823763 |
This volume of Critical Studies on Corporate Responsibility, Governance and Sustainability titled Negative Interest Rates: The Black Hole of Financial Capitalism is the English translation of and already published french book about Financial Capitalism. It explores the themes and the consequences of Negative interest and capitalism.
Author | : Natalya Martynova |
Publisher | : International Monetary Fund |
Total Pages | : 44 |
Release | : 2015-11-25 |
Genre | : Business & Economics |
ISBN | : 1513565818 |
Traditional theory suggests that more profitable banks should have lower risk-taking incentives. Then why did many profitable banks choose to invest in untested financial instruments before the crisis, realizing significant losses? We attempt to reconcile theory and evidence. In our setup, banks are endowed with a fixed core business. They take risk by levering up to engage in risky ‘side activities’(such as market-based investments) alongside the core business. A more profitable core business allows a bank to borrow more and take side risks on a larger scale, offsetting lower incentives to take risk of given size. Consequently, more profitable banks may have higher risk-taking incentives. The framework is consistent with cross-sectional patterns of bank risk-taking in the run up to the recent financial crisis.
Author | : International Monetary Fund. Asia and Pacific Dept |
Publisher | : International Monetary Fund |
Total Pages | : 51 |
Release | : 2017-03-08 |
Genre | : Business & Economics |
ISBN | : 1498346464 |
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.
Author | : Vineer Bhansali |
Publisher | : |
Total Pages | : |
Release | : 2021 |
Genre | : |
ISBN | : 9781952927188 |
Author | : Margherita Bottero |
Publisher | : International Monetary Fund |
Total Pages | : 59 |
Release | : 2019-02-28 |
Genre | : Business & Economics |
ISBN | : 1498300855 |
We study negative interest rate policy (NIRP) exploiting ECB's NIRP introduction and administrative data from Italy, severely hit by the Eurozone crisis. NIRP has expansionary effects on credit supply-- -and hence the real economy---through a portfolio rebalancing channel. NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets, not with higher retail deposits. NIRP-affected banks rebalance their portfolios from liquid assets to credit—especially to riskier and smaller firms—and cut loan rates, inducing sizable real effects. By shifting the entire yield curve downwards, NIRP differs from rate cuts just above the ZLB.
Author | : Mr.Giovanni Dell'Ariccia |
Publisher | : International Monetary Fund |
Total Pages | : 41 |
Release | : 2013-06-06 |
Genre | : Business & Economics |
ISBN | : 1484381130 |
We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on the internal ratings of U.S. banks on loans to businesses over the period 1997 to 2011 from the Federal Reserve’s survey of terms of business lending. We find that ex-ante risk taking by banks (as measured by the risk rating of the bank’s loan portfolio) is negatively associated with increases in short-term policy interest rates. This relationship is less pronounced for banks with relatively low capital or during periods when banks’ capital erodes, such as episodes of financial and economic distress. These results contribute to the ongoing debate on the role of monetary policy in financial stability and suggest that monetary policy has a bearing on the riskiness of banks and financial stability more generally.
Author | : Katrin Assenmacher |
Publisher | : International Monetary Fund |
Total Pages | : 31 |
Release | : 2018-08-27 |
Genre | : Business & Economics |
ISBN | : 1484370023 |
Monetary policy space remains constrained by the lower bound in many countries, limiting the policy options available to address future deflationary shocks. The existence of cash prevents central banks from cutting interest rates much below zero. In this paper, we consider the practical feasibility of recent proposals for decoupling cash from electronic money to achieve a negative yield on cash which would remove the lower bound constraint on monetary policy. We discuss how central banks could design and operate such a system, and raise some unanswered questions.