Negative interest rate policy as conventional monetary policy

| Publication date: 4 Nov 2015 | External Author(s): Kimball, M S | JEL Classification: E52, E58, E42, E43, E41, E31 | Journal: National Institute Economic Review Issue 234 | Publisher: Sage Publications, London

As long as all interest rates move in tandem – including the rate of return on paper currency – economic theory suggests no important difference between interest rate changes in the positive region and interest rate changes in the negative region. Indeed, in standard models, only the real interest rate and spreads between real interest rates matter. Thus, in most respects, negative interest rate policy is conventional. It is only (a) what needs to be done with paper currency, (b) difficulties in understanding negative rates or (c) institutional features interacting with negative rates that make negative interest rate policy unconventional.

Keyword tags: 
monetary policy
negative interest rates
unconventional
stabilisation
transmission