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Negative interest rates in the eurozone

Author

Listed:
  • Domenica Tropeano

    (Department of Economics and Law, University of Macerata, Italy)

Abstract

This paper reviews the eurozone's negative rate deposit facility and seeks to explain its rationale. The paper rejects the conventional explanation that the negative rate deposit facility improves the transmission mechanism of monetary policy and contributes to the economic recovery of the area. Instead, the paper argues that the rationale for the policy is to be found in the interbank market. The European unsecured interbank market has malfunctioned since the beginning of the global financial crisis in 2007. The negative policy rate is an extreme attempt to revive that market, but that attempt has failed. Rather than being a conventional policy, as some scholars have argued, the paper maintains that the policy is deeply unconventional because it does not target the overnight interest rate as the interbank market has effectively become irrelevant.

Suggested Citation

  • Domenica Tropeano, 2019. "Negative interest rates in the eurozone," Review of Keynesian Economics, Edward Elgar Publishing, vol. 7(2), pages 233-246, April.
    • Handle: RePEc:elg:rokejn:v:7:y:2019:i:2:p233-246
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    Citations

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    Cited by:

    1. Stefano Di Bucchianico, 2021. "Negative Interest Rate Policy to Fight Secular Stagnation: Unfeasible, Ineffective, Irrelevant, or Inadequate?," Review of Political Economy, Taylor & Francis Journals, vol. 33(4), pages 687-710, October.
    2. Domenica Tropeano, 2020. "Does the BRRD affect the retail banking business model in the Euro area?," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 49(2), July.
    3. Jessica Reale, 2023. "Interbank Decisions and Margins of Stability: an Agent-Based Stock-Flow Consistent Approach," Papers 2306.05860, arXiv.org.

    More about this item

    Keywords

    negative; interest; rate; interbank market; euro;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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