Negative Interest Rates May be More Psychologically Acceptable than Assumed: Implications for Savings

27 Pages Posted: 16 Dec 2019

See all articles by Emir Efendic

Emir Efendic

Catholic University of Louvain (UCL)

Catherine D'Hondt

UCLouvain, Louvain School of Management - Louvain Finance

Rudy De Winne

UCLouvain - Louvain Finance

Olivier Corneille

Catholic University of Louvain (UCL)

Date Written: November 27, 2019

Abstract

The recent implementation of negative interest rates (NIR) by central and commercial banks invites empirical scrutiny of how people would react to this atypical financial policy where one has to pay to let money in the bank. Economic thinking on this issue posits that people would not tolerate NIR on their deposits, and would instead be motivated to spend or invest their money. In two experiments, we find that people, when the alternative is to take one’s savings out of the bank, show a large tolerance to NIR. This tolerance fluctuates as a function of the size of one’s savings (less tolerance for higher amounts), size of NIR (less tolerance for more negative rates), age (older people are less tolerant of NIR) and risk-taking inclinations (those that are more risk-seeking show less tolerance of NIR). The findings are discussed with regards to economic assumptions associated with NIR policy implementation and the psychological implications of this decision-making context.

Keywords: saving, negative interest rates, financial decision making, loss-aversion

JEL Classification: G02, G21

Suggested Citation

Efendic, Emir and D'Hondt, Catherine and De Winne, Rudy and Corneille, Olivier, Negative Interest Rates May be More Psychologically Acceptable than Assumed: Implications for Savings (November 27, 2019). Available at SSRN: https://ssrn.com/abstract=3494988 or http://dx.doi.org/10.2139/ssrn.3494988

Emir Efendic (Contact Author)

Catholic University of Louvain (UCL) ( email )

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

Catherine D'Hondt

UCLouvain, Louvain School of Management - Louvain Finance ( email )

151 Chaussée de Binche
Mons, 7000
Belgium

Rudy De Winne

UCLouvain - Louvain Finance ( email )

Belgium
+3265323334 (Phone)

Olivier Corneille

Catholic University of Louvain (UCL) ( email )

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
50
Abstract Views
274
PlumX Metrics