Andrew Lilley, Kenneth Rogoff, 17 April 2020

In the aftermath of the Global Crisis, conventional monetary policy has been constrained by low interest rates in many major economies. This has spurred debates on the possibility of introducing negative interest rates in the monetary policy toolkit. This column uses evidence from the US to show that not only do the markets expect the low interest rates to persist into the future, but they also expect the use of negative interest rates down the line. Moreover, markets no longer believe that even quantitative easing can bring inflation to target, which leaves very few alternatives for monetary policy apart from negative interest rates.

Florian Heider, Farzad Saidi, Glenn Schepens, 17 December 2019

In recent years, several central banks have steered policy rates into negative territory for the first time in their history. The novel nature of negative rates raises several questions about how monetary policy operates in such non-standard territory. This column summarises recent research that focuses on the impact of negative policy rates on bank credit supply and bank risk-taking in the euro area. The findings point to a crucial role for bank deposits in the transmission mechanism of negative rates.

Carlo Altavilla, Lorenzo Burlon, Mariassunta Giannetti, Sarah Holton, 08 November 2019

Economists and policymakers continue to question the effectiveness of monetary policy when an economy faces near-zero or sub-zero interest rates. Sceptics argue that central banks cannot stimulate lending, and may indeed decrease the loan supply, by setting negative interest rates. This column shows that negative rates do not impede the transmission of monetary policy from banks to deposit holders because firms do not withdraw cash in response to negative rates the way households might. In fact, sub-zero rates may even stimulate the economy by encouraging firms to invest.

Carlo Altavilla, Wolfgang Lemke, Roberto Motto, Natacha Valla, 28 February 2019

The ECB Conference on Monetary Policy took place in Frankfurt from 29 to 30 October 2018. This column describes presentations on topics including the interaction of monetary policy and financial markets, the relevance of banks and credit flows for monetary policy transmission, and the current challenges for monetary policy frameworks and strategies. The conference provided a forum for academic research and the practice of central banking to meet. 

Gauti Eggertsson, Lawrence H. Summers, 24 January 2019

Several central banks implemented negative policy rates in response to the financial crisis, but there is little consensus on the overall effect of this policy. This column examines the transmission of policy rates to bank lending rates, focusing on the case of Sweden. While the first two cuts in negative territory by the Riksbank appear to have been transmitted to lending rates, transmission seems to have broken down for the second two cuts. The findings suggest diminishing returns on interest rate cuts at negative rates.

Stephen Cecchetti, 25 June 2018

Though central banks do not seem concerned about being driven obsolete by cryptocurrencies, some are considering issuing digital currencies with similar technology. Stephen Cecchetti discusses three policy implications this might have, namely for restricting the illegal use of cash, allowing for negative interest rates, and improving financial access. All three are possible, but come with risk.

Gauti Eggertsson, Ragnar Juelsrud, Ella Getz Wold, 31 January 2018

Economists disagree on the macroeconomic role of negative interest rates. This column describes how, due to an apparent zero lower bound on deposit rates, negative policy rates have so far had very limited impact on the deposit rates faced by households and firms, and this lower bound on the deposit rate seems to be causing a decline in pass-through to lending rates as well. Negative interest rates thus appear ineffective in stimulating aggregate demand.

Allaudeen Hameed, Andrew Rose, 27 October 2016

Recently a number of both small and large economies have experienced negative nominal interest rates. This column uses exchange rate data from 2010 to 2016 to demonstrate that negative interest rates seem to have little effect on observable exchange rate behaviour in these economies. While the long-run consequences for the financial sector of negative interest rates are unknown, the short-run effects on exchange rates in the sample are negligible.

Ángel Ubide, 11 October 2016

The pre-crisis consensus was, and remains, very strong – the business cycle would be managed by monetary policy, while fiscal policy would focus solely on debt sustainability. In a world of zero interest rates, however, fiscal policy has to contribute to supporting aggregate demand and protecting against deflationary risks. This column outlines three ways in which a well-designed expansionary fiscal policy stance can contribute to better economic outcomes. 

Carlos Arteta, M. Ayhan Kose, Marc Stocker, Temel Taskin, 26 September 2016

Against a background of persistently weak growth and low inflation expectations, a number of central banks have implemented negative interest rate policies over the past few years. This column argues that such policies could help provide additional monetary policy stimulus, as long as policy interest rates are only modestly negative and do not stay negative for too long to avoid adverse effects on the financial sector. While these policies do have a place in the policymaker’s toolkit, they need to be handled with care to secure their benefits while mitigating risks.

Mark Cliffe, 26 February 2016

As doubts grow about the effectiveness of quantitative easing, monetary policymakers are leaning towards cutting interest rates further into negative territory as their preferred mode of easing. But this begs crucial and untested questions of whether banks will be willing to pass on the cost to their retail depositors, and of how depositors might react if they did so. This column notes a recently published survey in which a large majority of respondents said that they would withdraw their savings, and yet few would spend more. Although it could be argued that savers might react less negatively when confronted with the reality of negative rates, their powerful aversion to the prospect raises troubling questions about the potential effectiveness of this policy tool.

Angus Armstrong, Francesco Caselli, Jagjit Chadha, Wouter den Haan, 02 August 2015

Does monetary policy really face a zero lower bound or could policy rates be pushed materially below zero per cent? And would the benefits of reforms to achieve negative policy rates outweigh the costs? This column, which reports the views of the leading UK-based macroeconomists, suggests that there is no strong support for reforming the monetary system to allow policy rates to be set at negative levels.

Willem Buiter, 04 June 2009

Some economists are arguing that central banks should set negative nominal interest rates. This column explains the basics by describing three ways of removing the zero lower bound on nominal interest rates: abolish currency, tax currency holding, or decouple the unit of account from the currency by introducing a new currency.


CEPR Policy Research