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The International Experience with Negative Policy Rates

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  • Harriet Jackson

Abstract

A key issue in the renewal of the inflation-control agreement is the question of the appropriate level of the inflation target. Many observers have raised concerns that with the reduction in the neutral rate, and the experience of the recent financial crisis, the effective lower bound (ELB) is more likely to be binding in the future if inflation targets remain at 2 per cent. This has led some to argue that the inflation target should be raised to reduce the incidence of ELB episodes. Much of this debate has assumed that the ELB is close to, but not below, zero. Recently, however, a number of central banks have introduced negative policy interest rates. This paper outlines the concerns associated with negative interest rates, provides an overview of the international experience so far with negative policy rates and sets out some general observations based on this experience. It then discusses how low policy interest rates might be able to go in these economies, and offers some considerations for the renewal of the inflation-control agreement.

Suggested Citation

  • Harriet Jackson, 2015. "The International Experience with Negative Policy Rates," Discussion Papers 15-13, Bank of Canada.
    • Handle: RePEc:bca:bocadp:15-13
    DOI: 10.34989/sdp-2015-13
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    References listed on IDEAS

    as
    1. Eric Santor & Lena Suchanek, 2013. "Unconventional Monetary Policies: Evolving Practices, Their Effects and Potential Costs," Bank of Canada Review, Bank of Canada, vol. 2013(Spring), pages 1-15.
    2. Abeer Reza & Eric Santor & Lena Suchanek, 2015. "Quantitative Easing as a Policy Tool Under the Effective Lower Bound," Discussion Papers 15-14, Bank of Canada.
    3. Di Maggio, Marco & Kacperczyk, Marcin, 2017. "The unintended consequences of the zero lower bound policy," Journal of Financial Economics, Elsevier, vol. 123(1), pages 59-80.
    4. Schmiedel, Heiko & Kostova, Gergana & Ruttenberg, Wiebe, 2012. "The social and private costs of retail payment instruments: a European perspective," Occasional Paper Series 137, European Central Bank.
    5. Sharon Kozicki & Eric Santor & Lena Suchanek, 2011. "Unconventional Monetary Policy: The International Experience with Central Bank Asset Purchases," Bank of Canada Review, Bank of Canada, vol. 2011(Spring), pages 13-25.
    6. Schmiedel, Heiko & Kostova, Gergana & Ruttenberg, Wiebe, 2012. "The social and private costs of retail payment instruments: a European perspective," Occasional Paper Series 137, European Central Bank.
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    Keywords

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    JEL classification:

    • E - Macroeconomics and Monetary Economics
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • 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
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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