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The Interest Rate Unbound?
Report

The Interest Rate Unbound?

Jean-Pierre Danthine
Brookings Institution, 2016
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Editorial Rating

7

Qualities

  • Analytical
  • Innovative
  • Well Structured

Recommendation

Negative real interest rates, although they sound counterintuitive, have existed at various times in history. Recently, central banks in Switzerland, Denmark, Sweden, Japan and the euro zone have adopted such policies either to manage exchange rates or to provide stimulus in today’s low-growth environment. Economist Jean-Pierre Danthine examines the impacts of such policies. Although his paper is rather technical and would have benefited from editing for clarity, it provides some good nuggets of information about negative rates’ impacts on society. getAbstract suggests Danthine’s eye-opening report to investors, policy makers and executives.

Summary

Five central banks have opted to set their national interest rates below zero. In Switzerland and Denmark, the goals were to safeguard the exchange rate parities of the Swiss franc and the Danish krone, respectively. By early 2015, the interest rates on bank reserves in Switzerland and Denmark were down to −75 basis points (bp), though Denmark subsequently raised its rate −65 bp in early 2016. In the cases of the euro zone, Japan and Sweden, the aim of central bankers was to contain deflationary pressures. The European Central Bank lowered its rates to −30 bp by December 2015. In ...

About the Author

Jean-Pierre Danthine is president of the Paris School of Economics.

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