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Negative Policy Rates, Banking Flows and Exchange Rates

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Abstract

Setting negative nominal rates is one of the unconventional policies implemented after the Great Recession to overcome the Zero Lower Bound. Using data from the euro area and Denmark, I assess the impact of introducing a negative interest rate on reserves. I find that it did put a depreciation pressure on the currency due to a reversal in banking flows. This effect is not only caused by policy differentials, but also by a distinct impact of going into negative territory from lowering interest rates.

Suggested Citation

  • Anwar Khayat, 2015. "Negative Policy Rates, Banking Flows and Exchange Rates," AMSE Working Papers 1538, Aix-Marseille School of Economics, France, revised Sep 2015.
  • Handle: RePEc:aim:wpaimx:1538
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    Cited by:

    1. Jens Eisenschmidt & Frank Smets, 2019. "Negative Interest Rates: Lessons from the Euro Area," Central Banking, Analysis, and Economic Policies Book Series, in: Álvaro Aguirre & Markus Brunnermeier & Diego Saravia (ed.), Monetary Policy and Financial Stability: Transmission Mechanisms and Policy Implications, edition 1, volume 26, chapter 2, pages 013-042, Central Bank of Chile.

    More about this item

    Keywords

    Monetary policy; negative nominal rates; exchange rates; banking flows;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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