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On the Negatives of Negative Interest Rates.
- Source :
- Working Papers: U.S. Federal Reserve Board's Finance & Economic Discussion Series; Sep2023, p1-43, 74p
- Publication Year :
- 2023
-
Abstract
- Major central banks remunerate reserves at negative rates (NIR). To study the long-run effects of NIR, we focus on the role of reserves as intertemporal stores of value that are used to settle interbank liabilities. We construct a dynamic general equilibrium model with commercial banks holding reserves and funding investments with retail deposits. In the long run, NIR distorts investment decisions, lowers welfare, depresses output, and reduces bank profitability. The type of distortion depends on the transmission of NIR to retail deposits. The availability of cash explains the asymmetric effects of policy-rate changes in negative vs positive territory. [ABSTRACT FROM AUTHOR]
- Subjects :
- INTEREST rates
MONEY market
MONETARY policy
BANKING industry
PROFITABILITY
Subjects
Details
- Language :
- English
- ISSN :
- 19362854
- Database :
- Complementary Index
- Journal :
- Working Papers: U.S. Federal Reserve Board's Finance & Economic Discussion Series
- Publication Type :
- Report
- Accession number :
- 172789159
- Full Text :
- https://doi.org/10.17016/FEDS.2023.064