IDEAS home Printed from https://ideas.repec.org/a/ces/ifosdt/v65y2012i16p3-19.html
   My bibliography  Save this article

Interest Rate Reductions Reach Historical Lows: What are the Results of the ECB’s Low Interest Rate Policy?

Author

Listed:
  • Michael Schubert
  • Sebastian Watzka
  • Jörg Hinze
  • Leon Leschus
  • Gunther Schnabl

Abstract

Over the course of the financial crisis and deteriorating real economic activity the European Central Bank (ECB) has lowered interest rates in the Eurozone to historic lows. What are the risks of this low-interest rate policy? According to Michael Schubert, Commerzbank AG, Frankfurt am Main, low interest rates cannot combat the causes of the crisis, namely soaring public deficits and the structural problems in peripheral countries. They will at best help to diminish some of the symptoms. Sebastian Watzka, Ludwig-Maximilians University of Munich, does not believe that the current excessively low interest rates pose any really major danger for the German financial market and the real economy. On the contrary, with the growing danger of a recession in the Eurozone the current situation in the financial market is characterised by the search for presumably safe bonds. Developments in asset values and risk-taking nevertheless merit close observation in the future. For Jörg Hinze and Leon Leschus, Hamburg Institute of World Economics, fears that expansive monetary and fiscal policy could lead to inflation in view of the current recessionary downturns in many countries are unjustified. In the Eurozone the debate is centering more on deflation risks and the need for new growth programs and /or stimulating measures. For Gunther Schnabl, University of Leipzig, today’s monetary policy crisis therapy will be the cause of tomorrow’s crisis. New, ever bigger liquidity injections will be necessary since the results of the gradual fall in world interest rate levels are not limited to the financial markets, but act as an incentive for rising public borrowing, which will have lasting repercussions for monetary policy.

Suggested Citation

  • Michael Schubert & Sebastian Watzka & Jörg Hinze & Leon Leschus & Gunther Schnabl, 2012. "Interest Rate Reductions Reach Historical Lows: What are the Results of the ECB’s Low Interest Rate Policy?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 65(16), pages 3-19, August.
    • Handle: RePEc:ces:ifosdt:v:65:y:2012:i:16:p:3-19
    as

    Download full text from publisher

    File URL: https://www.ifo.de/DocDL/ifosd_2012_16_1.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Gunther Schnabl & Andreas Hoffmann, 2008. "Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets: An Overinvestment View," The World Economy, Wiley Blackwell, vol. 31(9), pages 1226-1252, September.
    2. Andreas Hoffmann & Gunther Schnabl, 2011. "A Vicious Cycle of Manias, Crises and Asymmetric Policy Responses – An Overinvestment View," The World Economy, Wiley Blackwell, vol. 34(3), pages 382-403, March.
    3. Schnabl Gunther, 2013. "Die japanischen Lehren für die europäische Krise," Zeitschrift für Wirtschaftspolitik, De Gruyter, vol. 62(1), pages 3-22, April.
    4. Gunther Schnabl, 2012. "Monetary Policy Reform in a World of Central Banks," Global Financial Markets Working Paper Series 26-2012, Friedrich-Schiller-University Jena.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gunther Schnabl, 2014. "Der Weg in die Nullzins- und Hochverschuldungsfalle," Global Financial Markets Working Paper Series 2013-50, Friedrich-Schiller-University Jena.
    2. Gunther Schnabl, 2012. "Monetary Policy Reform in a World of Central Banks," Global Financial Markets Working Paper Series 26-2012, Friedrich-Schiller-University Jena.
    3. Schnabl, Gunther, 2013. "The global move into the zero interest rate and high debt trap," Working Papers 121, University of Leipzig, Faculty of Economics and Management Science.
    4. Andre Tomfort, 2017. "The Japanese Asset Price Bubble: Evolvement and Consequences," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 4(2), pages 132-141.
    5. Latsos Sophia, 2018. "Real Wage Effects of Japan’s Monetary Policy," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 69(1), pages 177-215, July.
    6. Andreas Hoffmann & Gunther Schnabl, 2011. "National Monetary Policy, Internatinal Economic Instability and Feeback Effects - An Overinvestment View," Global Financial Markets Working Paper Series 19-2011, Friedrich-Schiller-University Jena.
    7. Andreas Hoffmann, 2010. "An Overinvestment Cycle In Central And Eastern Europe?," Metroeconomica, Wiley Blackwell, vol. 61(4), pages 711-734, November.
    8. Hoffmann, Andreas, 2013. "Did the Fed and ECB react asymmetrically with respect to asset market developments?," Journal of Policy Modeling, Elsevier, vol. 35(2), pages 197-211.
    9. Andreas Hoffmann & Gunther Schnabl, 2016. "Adverse Effects of Ultra-Loose Monetary Policies on Investment, Growth and Income Distribution," CESifo Working Paper Series 5754, CESifo.
    10. Gunther Schnabl, 2013. "The Macroeconomic Policy Challenges of Balance Sheet Recession: Lessons from Japan for the European Crisis," CESifo Working Paper Series 4249, CESifo.
    11. Gunther Schnabl, 2015. "Monetary Policy and Structural Decline: Lessons from Japan for the European Crisis," Asian Economic Papers, MIT Press, vol. 14(1), pages 124-150, Winter/Sp.
    12. Joanna Stawska & Katarzyna Miszczyńska, 2017. "The Impact of the European Central Bank’s Interest Rates on Investments in the Euro Area," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 5, pages 51-72.
    13. Gunther Schnabl, 2016. "Central Banking and Crisis Management from the Perspective of Austrian Business Cycle Theory," CESifo Working Paper Series 6179, CESifo.
    14. Gunther Schnabl, 2017. "The Failure of ECB Monetary Policy from a Mises-Hayek Perspective," CESifo Working Paper Series 6388, CESifo.
    15. Roy, Saktinil & Kemme, David M., 2012. "Causes of banking crises: Deregulation, credit booms and asset bubbles, then and now," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 270-294.
    16. Kristina Spantig, 2015. "The role of the financial sector in enhancing economic growth in the Lao People’s Democratic Republic," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 22(1), pages 67-98, June.
    17. Mathilde Maurel & Gunther Schnabl, 2012. "Keynesian and Austrian Perspectives on Crisis, Shock Adjustment, Exchange Rate Regime and (Long-Term) Growth," Open Economies Review, Springer, vol. 23(5), pages 847-868, November.
    18. A. Hoffmann, 2012. "Determinants of carry trades in Central and Eastern Europe," Applied Financial Economics, Taylor & Francis Journals, vol. 22(18), pages 1479-1490, September.
    19. Nicolas Cachanosky, 2014. "The Mises-Hayek business cycle theory, fiat currencies and open economies," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 27(3), pages 281-299, September.
    20. Hoffmann, Andreas & Schnabl, Gunther, 2016. "Monetary policies of industrial countries, emerging market credit cycles and feedback effects," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 855-873.

    More about this item

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G01 - Financial Economics - - General - - - Financial Crises

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ifosdt:v:65:y:2012:i:16:p:3-19. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/ifooode.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.