To Decrease or Not to Decrease: The Impact of Zero and Negative Interest Rates on Investment Decisions

36 Pages Posted: 20 Jun 2020

See all articles by Lior David-Pur

Lior David-Pur

Ben-Gurion University of the Negev

Koresh Galil

Ben-Gurion University of the Negev - Department of Economics

Mosi Rosenboim

Ben-Gurion University of the Negev

Date Written: May 20, 2020

Abstract

The suggestion to implement a negative monetary policy has divided economists and politicians. The effects of this experiment on the willingness of individuals and financial intermediaries to borrow and spend money and increase their risk are controversial. To provide insight into the debate, we provide experimental evidence revealing two important results. First, zero interest rates are more efficient than negative interest rates in terms of the impact on the willingness of individuals to borrow money and take risks. We suggest two behavioral explanations for this result. Second, we find no statistical difference between the effect that positive and negative interest rates have on the change in the allocation of risky assets in investment portfolios.

Keywords: Investment Decision, Asset Allocation, Negative Interest Rate Policy, Zero Interest Rate Policy, Reaching for Yield

JEL Classification: G12, G41, E70

Suggested Citation

David-Pur, Lior and Galil, Koresh and Rosenboim, Mosi, To Decrease or Not to Decrease: The Impact of Zero and Negative Interest Rates on Investment Decisions (May 20, 2020). Available at SSRN: https://ssrn.com/abstract=3611505 or http://dx.doi.org/10.2139/ssrn.3611505

Lior David-Pur (Contact Author)

Ben-Gurion University of the Negev ( email )

1 Ben-Gurion Blvd
Beer-Sheba 84105, 84105
Israel

Koresh Galil

Ben-Gurion University of the Negev - Department of Economics ( email )

Beer-Sheva 84105
Israel
+972-8-6472310 (Phone)

Mosi Rosenboim

Ben-Gurion University of the Negev ( email )

1 Ben-Gurion Blvd
Beer-Sheva, 84105
Israel

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