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Assessing the appropriateness of zero and negative interest rate regimes: recent developments and comparative analyses


  • Ojo, Marianne
  • Newton, Sarah


This paper explores the widely held theoretical view that zero interest rates should result in lower borrowing costs – propelling the demand for borrowing, “the theory and practice of monetary policy”, against the practical and broader acknowledgements that further negative consequences, namely bank runs - as well as the possibility of the occurrence of concerns of banks becoming more prone to the probabilities of greater unwillingness to lend, could occur. The latter negative consequence of banks’ unwillingness to lend, being considered to arise where “banks absorb the cost of negative rates themselves” such that this phenomenon “squeezes” the profit margin between their lending and deposit rates. However, as will be illustrated, different sources and authorities on the literature agree that it is still too early to draw conclusions on the impact of negative interest rates – be it in respect of i) whether it will work, ii) its wider impact and repercussions for the economy – as well as those economies where the policy has not yet been implemented (even where the policy is on the cards – namely in jurisdictions such as the United States), as well as (iii) its impact on the behavior of individuals (households) and firms. In exploring the appropriateness of its adoption – given prevailing global financial conditions and the economic environment, the paper also contributes to the extant literature from a theoretical, practical, empirical, as well as comparative jurisdictional perspective.

Suggested Citation

  • Ojo, Marianne & Newton, Sarah, 2016. "Assessing the appropriateness of zero and negative interest rate regimes: recent developments and comparative analyses," MPRA Paper 72696, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:72696

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    References listed on IDEAS

    1. Morten Linnemann Bech & Aytek Malkhozov, 2016. "How have central banks implemented negative policy rates?," BIS Quarterly Review, Bank for International Settlements, March.
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    More about this item


    interest rates; monetary policy; central banks; market rates; lending rates;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • 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
    • F3 - International Economics - - International Finance
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • K2 - Law and Economics - - Regulation and Business Law
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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