Are Negative Nominal Interest Rates Expansionary?

51 Pages Posted: 20 Nov 2017

See all articles by Gauti B. Eggertsson

Gauti B. Eggertsson

Federal Reserve Bank of New York

Ragnar Juelsrud

Norges Bank

Ella Wold

Brown University

Date Written: November 2017


Following the crisis of 2008 several central banks engaged in a radical new policy experiment by setting negative policy rates. Using aggregate and bank-level data, we document a collapse in pass-through to deposit and lending rates once the policy rate turns negative. Motivated by these empirical facts, we construct a macro-model with a banking sector that links together policy rates, deposit rates and lending rates. Once the policy rates turns negative the usual transmission mechanism of monetary policy breaks down. Moreover, because a negative interest rate on reserves reduces bank profits, the total effect on aggregate output can be contractionary.

Suggested Citation

Eggertsson, Gauti B. and Juelsrud, Ragnar and Wold, Ella, Are Negative Nominal Interest Rates Expansionary? (November 2017). NBER Working Paper No. w24039. Available at SSRN:

Gauti B. Eggertsson (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Ragnar Juelsrud

Norges Bank ( email )

Bankplassen 2
Oslo, 0151


Ella Wold

Brown University

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