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The signalling channel of negative interest rates

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Authors and Corporations: De Groot, Oliver (Author), Haas, Alexander (Author)
Other Authors: Haas, Alexander [Author]
Edition: Current version: January 7, 2022
Type of Resource: E-Book
Language: English
published:
Berlin DIW Berlin, Deutsches Institut für Wirtschaftsforschung 2022
Series: Deutsches Institut für Wirtschaftsforschung: Discussion papers ; 1990
Subjects:
Source: Verbunddaten SWB
Lizenzfreie Online-Ressourcen
Description
Summary: Negative interest rates remain a controversial policy for central banks. We study a novel signalling channel and ask under what conditions negative rates should exist in an optimal policymaker’s toolkit. We prove two necessary conditions for the optimality of negative rates: a time-consistent policy setting and a preference for policy smoothing. These conditions allow negative rates to signal policy easing, even with deposit rates constrained at zero. In an estimated model, the signalling channel dominates the costly interest margin channel. However, the effectiveness of negative rates depends sensitively on the degree of policy inertia, level of reserves, and ZLB duration.
Physical Description: 1 Online-Ressource (circa 63 Seiten); Illustrationen