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Are Negative Rates a “Calamitous Misadventure"? ECB Economists Say No

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Are Negative Rates a “Calamitous Misadventure"? ECB Economists Say No

Brookings Institution,

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Negative interest rates might yield positive benefits.

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Editorial Rating

9

Qualities

  • Innovative

Recommendation

The European Central Bank, along with the central banks of countries like Switzerland and Japan, is deploying an accommodative monetary policy that has pushed interest rates below zero. In this clearly presented article, David Wessel and Peter Olson of the Brookings Institution argue that negative rates might yield positive benefits, despite criticism that negative rates are policy gone awry. getAbstract recommends Wessel and Olson’s fresh look at this unsettling new practice to policy makers, investors and business executives.

Summary

In 2014, the European Central Bank introduced negative interest rates; European banks now pay the ECB to hold their reserves. Switzerland, Sweden, Denmark and Japan are also in negative territory. The policy has faced severe criticism, but the ECB’s experience shows that, rather than being a “calamitous misadventure,” negative rates may bring some benefits:

  • “Bank lending rates for companies have fallen” – Businesses’ borrowing costs across the euro zone have decreased.
  • “Negative rates have made banks more likely to turn extra reserves...

About the Authors

David Wessel is a director at the Brookings Institution, where Peter Olson is a research analyst .

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