Negative Interest Rate Policy in a Permanent Liquidity Trap

Murota, Ryu-ichiro

doi:10.2139/ssrn.3376006

Cited by 1 publication

(1 citation statement)

References 39 publications

(51 reference statements)

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“…Some governments issued debt at negative rates as many investors prefer to buy creditworthy government securities, even if they must pay for them, rather than invest in high-risk assets. Negative rates subsidise borrowing and discourage long-term saving (Fukuda 2018;Murota 2019). It is true that expansionary policies have stabilised the situation in the short term after events such as the Great Recession or the pandemic, but if maintained indefinitely they can generate imbalances and risks such as the return of inflation in developed countries, public over-indebtedness and massive investment errors in the financial markets through a process of unsustainable growth (boom) that ends in a crisis (bust) (Switzer and Picard 2016;Kaczmarek et al 2021).…”

Section: Introductionmentioning

confidence: 99%

From the Great Recession to the COVID-19 Pandemic: The Risk of Expansionary Monetary Policies

Fernández

Alonso

Forradellas

et al. 2022

Risks

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Central banks have been pursuing an expansionary monetary policy since before the pandemic, although the health and economic crisis of COVID-19 has boosted asset purchase programmes. After the Great Recession, a new phase began, characterised by low interest rates and liquidity injections. These policies spilled over into financial markets and are leading to higher inflation. These policies stabilised the situation in the short term, but if they continue indefinitely there is a risk of debt overhang, investment mistakes and high inflation in the future. The aim of this article is to analyse monetary policy developments from the Great Recession to the COVID-19 crisis. Correlations between different macroeconomic variables will be shown through IBM SPSS Statistics. For this purpose, bi-variate correlations were used. For the predictions and confidence of the model data, Tableau Desktop Edition was used, which in turn was used for the generation of the graphs. There is a strong correlation between the growth of monetary aggregates and public debt and stock market capitalisation for the selected indicators. The main contribution of this research is the analysis of the long-term effects of a monetary policy.

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Section: Introductionmentioning

confidence: 99%