Low for Longer: Effects of Prolonged Negative Interest Rate Policies

Abstract:

In June 2014, the European Central Bank (ECB) was among the first major central banks to lower policy rates into negative territory. The deposit facility rate was subsequently cut four more times, lastly in September 2019 (to -0.5%). As an unconventional monetary policy instrument used over a prolonged period, negative interest rates require attention because of their uncertain or possibly negative side effects on the banking sector and economy at large.

Four papers were prepared by the ECON Committee’s Monetary Expert Panel, assessing the experience with negative interest rates in the euro area over the past seven years.

Further information:

This publication is provided by Policy Department A for the Committee on Economic and Monetary Affairs (ECON), ahead of the Monetary Dialogue with ECB President Lagarde on 21 June 2021.

Table of Contents:

• What are the effects of the ECB's Negative Interest Rate Policy | Grégory Claeys
• Should they stay or should they go? Negative interest rate policies under review | Joscha Beckmann, Klaus-Jürgen Gern & Nils Jannsen
• Low for Long: Side Effects of Negative Interest Rates | Justus Inhoffen, Atanas Pekanov & Thomas Url
• NIRP, Bank Profitability and Risk-Taking: Much Ado About 50 Basic Points | Daniel Gros & Farzaneh Shamsfakhr

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