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To decrease or not to decrease: The impact of zero and negative interest rates on investment decisions

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  • David-Pur, Lior
  • Galil, Koresh
  • Rosenboim, Mosi

Abstract

The suggestion to implement a negative monetary policy has divided economists and politicians. The effects of this experiment on the willingness of individuals and financial intermediaries to borrow and spend money and increase their risk are controversial. To provide insight into the debate, we provide experimental evidence revealing two important results. First, zero interest rates are more efficient than negative interest rates in terms of the impact on the willingness of individuals to borrow money and take risks. We suggest two behavioral explanations for this result. Second, we find no statistical difference between the effect that positive and negative interest rates have on the change in the allocation of risky assets in investment portfolios.

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  • David-Pur, Lior & Galil, Koresh & Rosenboim, Mosi, 2020. "To decrease or not to decrease: The impact of zero and negative interest rates on investment decisions," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 87(C).
    • Handle: RePEc:eee:soceco:v:87:y:2020:i:c:s2214804319304197
    DOI: 10.1016/j.socec.2020.101571
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    Cited by:

    1. Malgorzata Zaleska, 2022. "Reaction of the National Bank of Poland to the Impact of the COVID-19 Pandemic," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 938-954.
    2. D’Hondt, Catherine & De Winne, Rudy & Todorovic, Aleksandar, 2021. "Target Returns and Negative Interest Rates," LIDAM Discussion Papers LFIN 2021011, Université catholique de Louvain, Louvain Finance (LFIN).
    3. Corneille, O. & D’Hondt, C. & De Winne, R. & Efendic, E. & Todorovic, A., 2021. "What leads people to tolerate negative interest rates on their savings?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 93(C).

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    More about this item

    Keywords

    Investment decision; Asset allocation; Negative interest rate policy; Zero interest rate policy; Reaching for yield;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • E70 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - General

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