Moneymoney

Tue Aug 13, 2019, 12:11 PM

Negative interest rates: absolutely everything you need to know

Conclusions

Negative interest rates have become part of the central bank’s toolkit for responding to an economic downturn when nominal interest rates are already very low. They have worked largely as interest rate policy does in positive territory. This is a success and shows that central banks have a bit more firepower than they thought they had.

However, there are limits to how far interest rates can fall below zero in the absence of further measures to reduce general financial and economic risks.

With lacklustre growth, high unemployment and stubbornly low investment activity in many economies, policy-makers may want to do more, and monetary policy is far from the only option, although other types of monetary policy measures can be used. Public investment projects and a boost to government spending more generally can go a long way in complementing rate cuts. Government spending has a good track record when it comes to boosting growth, particularly when interest rates are low.

Supply-side reforms, ideally combined with fiscal policies, can also help to make economies more competitive and productive by improving the functioning of markets, upgrading educational systems, building critical infrastructure and unleashing entrepreneurship and innovation. Such measures will increase the potential for future growth. If this is understood – and believed – by the public, it could also increase confidence here and now, boosting spending and growth.

https://www.weforum.org/agenda/2016/11/negative-interest-rates-absolutely-everything-you-need-to-know/

0 replies, 43 views

Reply to this thread

Back to top Alert abuse

Moneymoney