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The Interest Rate Unbound?

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  • Jean-Pierre Danthine

    (PSE)

Abstract

What have we learned from the recent international experiences with negative interest rates? This paper reviews the evidence. Negative interest rates have proved so unpopular that it is unlikely that a full liberation from the Zero Lower Bound is within sight. The Swiss experience, however, suggests it might be possible to adopt significantly lower interest rates by capitalizing on the unwillingness of banks to transmit negative rates to retail depositors while making it financially feasible for them to do so. The resulting asymmetric transmission mechanism may suit small open economies in need of a negative interest differential.

Suggested Citation

  • Jean-Pierre Danthine, 2017. "The Interest Rate Unbound?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 59(2), pages 129-148, June.
    • Handle: RePEc:pal:compes:v:59:y:2017:i:2:d:10.1057_s41294-017-0019-3
    DOI: 10.1057/s41294-017-0019-3
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    References listed on IDEAS

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    1. Buiter, Willem H., 2009. "Negative nominal interest rates: Three ways to overcome the zero lower bound," The North American Journal of Economics and Finance, Elsevier, vol. 20(3), pages 213-238, December.
    2. Ruchir Agarwal & Miles Kimball, 2015. "Breaking Through the Zero Lower Bound," IMF Working Papers 2015/224, International Monetary Fund.
    3. Kenneth Rogoff, 2015. "Costs and Benefits to Phasing out Paper Currency," NBER Macroeconomics Annual, University of Chicago Press, vol. 29(1), pages 445-456.
    4. Dr. Christian Grisse & Dr. Silvio Schumacher, 2017. "The response of long-term yields to negative interest rates: evidence from Switzerland," Working Papers 2017-10, Swiss National Bank.
    5. Morten Linnemann Bech & Aytek Malkhozov, 2016. "How have central banks implemented negative policy rates?," BIS Quarterly Review, Bank for International Settlements, March.
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    More about this item

    Keywords

    negative interest rates; paper currency; transmission mechanism; tiering system;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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