Implications of Negative Interest Rate Policies: An Early Assessment

19 Pages Posted: 20 Feb 2018

See all articles by Carlos Arteta

Carlos Arteta

World Bank, Development Prospects Group

M. Ayhan Kose

World Bank; Brookings Institution; Centre for Economic Policy Research (CEPR); Australian National University (ANU)

Marc Stocker

World Bank

Temel Taskin

World Bank

Date Written: February 2018

Abstract

Over the past few years, several central banks have implemented negative interest rate policies (NIRP) to provide additional monetary policy stimulus. This paper presents an early assessment of the domestic and global implications of NIRP by analysing the behaviour of a set of key financial variables. We report three main results. First, since the introduction of NIRP, many of the key financial variables have evolved broadly, as implied by the standard transmission channels. For the euro area, the responses of these financial variables following NIRP announcements are directionally consistent with those of conventional interest rate cuts. Second, NIRP could pose risks to financial stability but there is no conclusive evidence as yet of a significant impact on bank profitability or of a broad‐based increase in leverage. Third, the responses of assets of emerging market and developing economies to NIRP announcements are on average broadly consistent with those to other types of expansionary monetary policy measures.

Suggested Citation

Arteta, Carlos and Kose, M. Ayhan and Stocker, Marc and Taskin, Temel, Implications of Negative Interest Rate Policies: An Early Assessment (February 2018). Pacific Economic Review, Vol. 23, Issue 1, pp. 8-26, 2018, Available at SSRN: https://ssrn.com/abstract=3124664 or http://dx.doi.org/10.1111/1468-0106.12249

Carlos Arteta (Contact Author)

World Bank, Development Prospects Group ( email )

1818 H Street, NW
Washington, DC 20433
United States

M. Ayhan Kose

World Bank

1818 H Street, NW
Washington, DC 20433
United States

Brookings Institution

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Australian National University (ANU)

Canberra, Australian Capital Territory 2601
Australia

Marc Stocker

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Temel Taskin

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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