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Central Banking below Zero: The Implementation of Negative Interest Rate Policies in Europe and Japan


  • Angrick, Stefan

    (Asian Development Bank Institute)

  • Nemoto, Naoko

    (Asian Development Bank Institute)


We provide an overview of the operational implementation of negative interest rates in Europe and Japan, drawing attention to the fact that there is precedent for negative policy rates and negative money market rates. We then address conceptual issues and summarize measures which define negative interest rate policies. Based on detailed institutional analyses and an examination of the interaction of negative interest rate policies with balance sheet policies, we argue that there is substantial heterogeneity in the purpose, design, and operational specificities of negative interest rate policies across economies, with significant consequences for effective money market rates, private sector funding conditions, and expectations. Finally, summarizing transmission channels of negative rates to the real economy and their potential benefits and risks, we call attention to potential adverse effects resulting from the interaction of negative interest rate policies with tighter liquidity and capital standards adopted since the Global Financial Crisis.

Suggested Citation

  • Angrick, Stefan & Nemoto, Naoko, 2017. "Central Banking below Zero: The Implementation of Negative Interest Rate Policies in Europe and Japan," ADBI Working Papers 740, Asian Development Bank Institute.
  • Handle: RePEc:ris:adbiwp:0740

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    References listed on IDEAS

    1. V. Grossmann-Wirth & M. Vari, 2016. "Exiting low interest rates in a situation of excess liquidity: the experience of the Fed," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 43, pages 5-14, Autumn.
    2. Arteta,Carlos & Kose,Ayhan & Stocker,Marc & Taskin,Temel, 2016. "Negative interest rate policies : sources and implications," Policy Research Working Paper Series 7791, The World Bank.
    3. Andreas Jobst & Huidan Huidan Lin, 2016. "Negative Interest Rate Policy (NIRP); Implications for Monetary Transmission and Bank Profitability in the Euro Area," IMF Working Papers 16/172, International Monetary Fund.
    4. Joshua Aizenman & Yin-Wong Cheung & Hiro Ito, 2019. "The Interest Rate Effect on Private Saving: Alternative Perspectives," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 10(01), pages 1-37, February.
    5. David Andolfatto & Li Li, "undated". "Quantitative easing in Japan: past and present," Economic Synopses 2, Federal Reserve Bank of St. Louis.
    6. Albertazzi, Ugo & Gambacorta, Leonardo, 2009. "Bank profitability and the business cycle," Journal of Financial Stability, Elsevier, vol. 5(4), pages 393-409, December.
    7. 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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    Cited by:

    1. Whelsy Boungou, 2019. "Negative interest rate, bank profitability and risk-taking," Documents de Travail de l'OFCE 2019-10, Observatoire Francais des Conjonctures Economiques (OFCE).
    2. Takamitsu Kurita, 2019. "A Recursive Monte Carlo Study of Structural-Break Sensitivity of Adjustment Coefficients in Cointegrated VAR Systems," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 17(2), pages 251-270, June.
    3. Angrick, Stefan & Nemoto, Naoko, 2018. "Breaking Par: Short-Term Determinants of Yen-Dollar Swap Deviations," ADBI Working Papers 859, Asian Development Bank Institute.
    4. Murota, Ryu-ichiro, 2019. "Negative interest rate policy in a permanent liquidity trap," MPRA Paper 93498, University Library of Munich, Germany.

    More about this item


    central banking; negative interest rate policies; negative policy rates; monetary policy transmission; monetary policy effectiveness; regulation;

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • 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

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