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Impact of Negative Interest Rate Policy on Emerging Asian markets: An Empirical Investigation

Author

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  • Anand, Abhishek

    (Harvard Kennedy School, Cambridge)

  • Chakraborty, Lekha

    (National Institute of Public Finance and Policy)

Abstract

In last few years, several central banks have implemented negative interest rate policies (NIRP) to boost domestic economy. However, such policies may have some unintended consequences for the emerging Asian markets (EAMs). The objective of this paper is to provide an assessment of the domestic and global implications of negative interest rate policy. We also present how the implications differ from that of quantitative easing (QE). The analysis shows that the impact NIRP is heterogeneous; with differential impacts for big Asian economies (India and Indonesia)and small trade dependent economies (STDE) (Hong Kong, Philippines, South Korea, Singapore and Thailand). Nominal GDP and exports are adversely impacted in EMs in response to NIRP, especially in India and Indonesia. The inflation goes significantly high in EMs in response to plausible negative interest rates but the impact is much more severe for India and Indonesia than in STDEs. The local currencies also depreciate in all EAMs in response to negative interest rates. QE, on the other hand, has no significant impact on inflation but nominal GDP growth declines in EAMs. The currency appreciates and exports decline. The impact is much more severe in big emerging economies like India and Indonesia.

Suggested Citation

  • Anand, Abhishek & Chakraborty, Lekha, 2020. "Impact of Negative Interest Rate Policy on Emerging Asian markets: An Empirical Investigation," Working Papers 20/307, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:20/307
    Note: Working Paper 307, 2020
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    References listed on IDEAS

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    Cited by:

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    2. Pandey, Rita & Kedia, Shailly & Malhotra, Anuja, 2020. "Addressing Air Quality Spurts due to Crop Stubble Burning during COVID19 Pandemic: A case of Punjab," Working Papers 20/308, National Institute of Public Finance and Policy.
    3. Shah, Ajay, 2020. "Responding to the new coronavirus: An Indian policy perspective," Working Papers 20/309, National Institute of Public Finance and Policy.

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    More about this item

    Keywords

    Negative interest rate policy ; Quantitative easing ; emerging economies;
    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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