Low for Long: Side Effects of Negative Interest Rates: Study Requested by the ECON committee

Diskussionspapiere extern

Justus Inhoffen, Atanas Pekanov, Thomas Url

Bruxelles: European Parliament, 2021, 37 S.
(Monetary Dialogue Papers ; June 2021)

Abstract

Policy rate cuts in negative territory have increased credit supply and improved the macroeconomic environment similar to cuts in positive territory. Dreaded disruptions to the monetary policy transmission channels as well as adverse side effects on bank profitability have so far largely failed to materialise. Thus, the evidence available today shows that the negative interest rate policy is an effective policy tool. However, systemic risks, including in the non-bank sector, should be closely monitored as negative rates are expected to remain low for longer.This paper was provided by the Policy Department for Economic, Scientific and Quality of Life Policies at the request of the committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 21 June 2021.

Justus Inhoffen

Ph.D. Student in the Macroeconomics Department

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