Negative Interest Rate Policies : Sources and Implications
Against the background of continued growth disappointments, depressed inflation expectations, and declining real equilibrium interest rates, a number of central banks have implemented negative interest rate policies (NIRP) to provide additional mon...
| Main Authors: | , , , |
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2016
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2016/08/26680761/negative-interest-rate-policies-sources-implications http://hdl.handle.net/10986/25036 |
| Summary: | Against the background of continued
growth disappointments, depressed inflation expectations,
and declining real equilibrium interest rates, a number of
central banks have implemented negative interest rate
policies (NIRP) to provide additional monetary policy
stimulus over the past few years. This paper studies the
sources and implications of NIRP. It reports four main
results. First, monetary transmission channels under NIRP
are conceptually analogous to those under conventional
monetary policy but NIRP present complications that could
limit policy effectiveness. Second, since the introduction
of NIRP, many of the key financial variables have evolved
broadly as implied by the standard transmission channels.
Third, NIRP could pose risks to financial stability,
particularly if policy rates are substantially below zero or
if NIRP are employed for a protracted period of time.
Potential adverse consequences include the erosion of
profitability of banks and other financial intermediaries,
and excessive risk taking. However, there has so far been no
significant evidence that financial stability has been
compromised because of NIRP. Fourth, spillover implications
of NIRP for emerging market and developing economies are
mostly similar to those of other unconventional monetary
policy measures. In sum, NIRP have a place in a policy
maker’s toolkit but, given their domestic and global
implications, these policies need to be handled with care to
secure their benefits while mitigating risks. |
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