Should they stay or should they go? Negative interest rate policies under review

Beckmann, Joscha; Gern, Klaus-Jürgen; Jannsen, Nils

doi:10.1007/s10368-022-00547-4

Cited by 9 publications

(4 citation statements)

References 73 publications

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“…This result is consistent withRubio (2016). Indeed house prices, being an asset price, move inversely with the nominal interest rate 8. Real interest rate on loans together with loans represent the source of funds for banks, that are used to pay back depositors at a cost that is the real interest rate on deposits.…”

supporting

confidence: 80%

Disinflation costs and macroprudential policies: real and welfare effects

Busato,

Ferrara,

Varlese

2023

JES

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PurposeThis paper analyzes real and welfare effects of a permanent change in inflation rate, focusing on macroprudential policy’ role and its interaction with monetary policy.Design/methodology/approachWhile investigating disinflation costs, the authors simulate a medium-scale dynamic general equilibrium model with borrowing constraints, credit frictions and macroprudential authority.FindingsProviding discussions on different policy scenarios in a context where still it is expected high inflation, there are three key contributions. First, when macroprudential authority actively operates to improve financial stability, losses caused by disinflation are limited. Second, a Taylor rule directly responding to financial variables might entail a trade-off between price and financial stability objectives, by increasing disinflation costs. Third, disinflation is welfare improving for savers, while costly for borrowers and banks. Indeed, while savers benefit from policies reducing price stickiness distortion, borrowers are worried about credit frictions, coming from collateral constraint.Practical implicationsThe paper suggests threefold policy implications: the macroprudential authority should actively intervene during a disinflation process to minimize costs and financial instability deriving from it; policymakers should implement a disinflationary policy stabilizing also output; the central bank and the macroprudential regulator should pursue financial and price stability goals, separately.Originality/valueThis paper is the first attempt to study effects of a permanent inflation target reduction in focusing on the macroprudential policy’ role.

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confidence: 80%

Disinflation costs and macroprudential policies: real and welfare effects

Busato,

Ferrara,

Varlese

2023

JES

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“…Unconventional monetary policies such as negative interest rate and quantitative easing were used to stimulate the economy (Haynes, 2015). The use of this expansionary monetary policy for a long time may make harder for central banks to quickly tighten monetary policy in the current situation of rising inflation (Beckmann et al, 2022). Regarding the COVID-19 pandemic, the rapid manufacturing and distribution of vaccines supported by governments led to a rapid immunization of the population and return to normalcy, particularly in high-income countries.…”

Section: Application To the Covid-19 Pandemic And The 2008 Global Fin...mentioning

confidence: 99%

Understanding and governing global systemic crises in the 21st century: A complexity perspective

et al. 2023

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Contemporary globalization has fostered human development but growing interconnectivity between societies has increased systemic risks (Goldin & Mariathasan, 2014;Goldin & Vogel, 2010). Systemic risks are risks associated with large-scale failures or changes of a system (Helbing, 2013). Disruptions originating in one country can quickly spread beyond national borders and affect large parts of the human population. Addressing such threats is considered a global public good, i.e., goods with benefits that extend to all countries (Kaul et al., 1999). In the study of risks with large-scale impacts, research has often focused on wars, natural disasters, and existential risks (Ord, 2020). However, crises affecting human societies are also related to economic and social issues, or the cooccurrence of social and ecological phenomena (Folke et al., 2021). In the early 21st century, the world has experienced several systemic events with global repercussions, including jihadist terrorism and the war on terror (2001), the global financial and economic crisis ( 2008), the COVID-19 pandemic (2020), and the current broader impact of the Russian aggression against Ukraine on energy, food, and security (2022).These events have provided an empirical basis to study systemic crises. This article aims at providing a broader understanding of the nature, causes, mechanisms, and impact of global systemic crises and their implications for global policymaking and governance. Such understanding is essential for the provision of global public goods to prevent, react to, and recover from shocks. The article

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“…There is some evidence that the behavior of banks changes once the lower bound has been reached due to nonlinearities [e.g., see Claeys (2021), Gros and Schamsfakhr (2021), Inhoffen et al (2021), or Beckmann et al (2022 for detailed explanations and summaries of findings in the literature]. Specifically, under the bank lending channel, the reversal interest rate might be reached and the lowering interest rates might become contractionary.…”

Section: Negative Interest Ratesmentioning

confidence: 99%

Monetary policy, funding cost and banks’ risk-taking: evidence from the USA

Bürgi

Jiang

2023

Empir Econ

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How much deposits and equity a bank has influences how a banks’ lending responds to monetary policy. While the responsiveness for the bank lending channel has been well established, this is not the case for the risk-taking channel (RTC). We show in a value-at-risk RTC model that the lending for banks with relatively more equity and non-interest-bearing deposits should respond less to monetary policy tightening. This suggests that non-interest-bearing deposits act as “pseudo capital.” In a panel of US banks, we find strong evidence in support of our model for various risk measures.

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Should they stay or should they go? Negative interest rate policies under review

Cited by 9 publications

References 73 publications

Disinflation costs and macroprudential policies: real and welfare effects

Disinflation costs and macroprudential policies: real and welfare effects

Understanding and governing global systemic crises in the 21st century: A complexity perspective

Monetary policy, funding cost and banks’ risk-taking: evidence from the USA

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