Abstract
This paper provides an overview of the operational implementation of negative interest rates in Europe and Japan. Drawing attention to the fact that there is precedent for negative policy rates and negative money market rates, the paper addresses conceptual issues and summarizes measures which define negative interest rate policy. Based on detailed institutional analysis and an examination of the interaction of interest rate policies with balance sheet policies, it is argued that there exists substantial heterogeneity in the purpose, design, and operational specificities of negative interest rate policies across economies, with significant consequences for effective market rates, private sector funding conditions, and expectations. Summarizing transmission channels of negative rates, benefits, and risks of the policy, the paper calls attention to potential adverse effects resulting from the interaction of negative interest rates with tighter liquidity and capital standards adopted since the Global Financial Crisis.
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Notes
Three rounds of refinancing operations have so far been completed within the TLTRO-II program, allocating 399.3 bn euros (514 institutions, June 2016), 45.3 bn euros (249 institutions, September 2016), and 62.2 bn euros of funds (200 institutions, December 2016), respectively.
As of November 2016, the combined TARGET 2 balances of German financial institutions make up 67% of all surpluses, while the combined balances of Italian and Spanish institutions make up 65% of all deficits.
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Acknowledgements
The authors wish to thank Tamim Bayoumi, Pornpinun Chantapacdepong, Grégory Claeys, Joseph E. Gagnon, Michael M. Hutchison, Narayana Kocherlakota, James McAndrews, Gunther Schnabl, Sayuri Shirai, Nao Sudo, and the attendees of the ADBI Annual Conference 2016 for their helpful comments and suggestions during the preparation of this paper. We further thank David Storey for the excellent research assistance. The views expressed herein are those of the authors, as are any remaining errors.
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Angrick, S., Nemoto, N. Central banking below zero: the implementation of negative interest rates in Europe and Japan. Asia Eur J 15, 417–443 (2017). https://doi.org/10.1007/s10308-017-0492-3
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DOI: https://doi.org/10.1007/s10308-017-0492-3