Negative Interest Rates

Casiraghi, Marco; Gelos, Gastón; Kamber, Güneş; Brandão-Marques, Luis; Meeks, Roland

doi:10.5089/9781513570082.087

Cited by 14 publications

(11 citation statements)

References 68 publications

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“…However, negative interest rate policies were introduced by several central banks, including the European Central Bank, in recent years, specifically since 2012 (Brandao-Marques et al, 2021). Also, overnight lending rates have been negative in the past, for example, the Euro OverNight Index Average, EONIA, realised around −48% in June 2021 (ECB, 2021;EONIA, 2021).…”

Section: Modelling Short Ratesmentioning

confidence: 99%

The impact of simultaneous shocks to financial markets and mortality on pension buy-out prices

2023

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In this paper, we determine the fair value of a pension buyout contract under the assumption that changes in mortality can have an impact on financial markets. Our proposed model allows for shocks to occur simultaneously in mortality rates and financial markets, so that strong changes in mortality rates can affect interest rates and asset prices. This approach challenges the common but very strong assumption that mortality and market risk drivers are independent. A simulation-based pricing framework is applied to determine the buyout premium for a hypothetical fully funded pension scheme. The results of an extensive sensitivity analysis show how buyout prices are affected by changes in mortality and financial markets. Surprisingly, we find that the impact of shocks is similar whether or not these shocks occur simultaneously or not, although there are some differences in annuity prices and buyout premiums. We clearly see that the intensity and severity of shocks, and asset price volatility play a dominant role for buyout prices.

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Section: Modelling Short Ratesmentioning

confidence: 99%

The impact of simultaneous shocks to financial markets and mortality on pension buy-out prices

2023

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“…As suggested by Brandão-Marques et al (2021) in their survey, banks' profitability can also be affected by their market power. However, the empirical evidence on the direction of this relationship is rather mixed and inconclusive (Berger, 1995;Berger et al, 2004;Gilbert, 1984).…”

Section: 6mentioning

confidence: 99%

“…Brandão‐Marques et al. (2021) provide a survey on the impact of central bank negative interest rate policy. They show that, based on the existing literature, bank profitability has not deteriorated significantly, although the effect is very heterogeneous.…”

Section: Financial Vulnerabilities Fueled By the Low Interest Rate En...mentioning

confidence: 99%

A prolonged period of low interest rates in Europe: Unintended consequences

Malovaná

Bajzík

Ehrenbergerová

et al. 2022

Journal of Economic Surveys

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We examine the potential adverse effects of a prolonged period of low interest rates on financial stability from multiple perspectives. First, we provide a unique comparison of natural rates of interest estimated using two approaches—with and without financial factors—for six large European countries inside and outside the euro area. Second, we provide a comprehensive review of the empirical literature, allowing us to identify and categorize financial vulnerabilities, which may be created and fueled by low interest rates. Third, we discuss a situation in which a prolonged period of low interest rates may lead to a point of no return by contributing to higher indebtedness, overvalued asset prices and underpriced risks, resource and credit misallocation, and lower productivity. With respect to all of that, we offer a few monetary policy considerations. Specifically, we suggest that (i) monetary policy should act symmetrically over the medium to long term, (ii) both the short‐term and long‐term costs and benefits of pursuing accommodative or restrictive monetary policy should be accounted for, and (iii) monetary and macroprudential policies need to be coordinated, and their interactions should be accounted for in order to find the best policy mix for the economy.

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“…Therefore, the focus of this paper is on the determinants of household savings decisions, and more specifically on the effects of negative interest rates. According to Brandao-Marques et al (2021), there are no empirical studies focusing on the effects of negative interest on household savings behavior. Indeed, to my knowledge, this paper is one of very first to do so.…”

Section: Introductionmentioning

confidence: 99%

Household Savings and Negative Interest Rates

Staal

2023

Int Adv Econ Res

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This paper analyses determinants of household savings in a model based on an extension of the disequilibrium savings theory. These extensions follow from the life-cycle, permanent-income and Ricardian-equivalence theories. Based on panel data of 20 countries from the period 2000–2020, fixed-effect least squares estimation procedures are used. The analysis provides evidence that negative interest rates lead to a statistically and economic significant increase in savings. This implies that stimulating household consumption with a monetary policy of negative interest rates is counter-productive. The positive effect of income uncertainty and lagged saving rates gets smaller for negative interest rates, weakening the support for the disequilibrium-savings theory. Larger government deficits increase savings even more when rates are negative, strengthening the Ricardian equivalence effect. The effect of negative interest on the predictions of the life-cycle and permanent-income theories is mixed.

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Negative Interest Rates

Abstract: The Departmental Paper Series presents research by IMF staff on issues of broad regional or cross-country interest. The views expressed in this paper are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Cited by 14 publications

References 68 publications

The impact of simultaneous shocks to financial markets and mortality on pension buy-out prices

The impact of simultaneous shocks to financial markets and mortality on pension buy-out prices

A prolonged period of low interest rates in Europe: Unintended consequences

Household Savings and Negative Interest Rates

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