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The Signalling Channel of Negative Interest Rates

Referierte Aufsätze Web of Science

Oliver de Groot, Alexander Haas

In: Journal of Monetary Economics 138 (2023), S. 87-103


Negative policy rates can convince markets that deposit rates will remain lower-for-longer, even when current deposit rates are constrained by zero. This is the signalling channel of negative interest rates. We analyse the optimality and effectiveness of negative rates in the context of this novel transmission channel. In a stylized model, we prove two necessary conditions for optimality: time-consistency and a preference for policy smoothing. In an estimated model, we show the signalling channel dominates banks’ costly interest margin channel. However, the effectiveness of negative rates depends sensitively on the degree of policy inertia, level of reserves, and ZLB duration.

Alexander Haas

Ph.D. Student in the Graduate Center

JEL-Classification: E44;E52;E61
Keywords: Monetary policy, Taylor rule, forward guidance, liquidity trap

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