As the global oil and energy prices plummeted in 2015, so did the inflation and growth rates. This left most central banks in quandary as inflation and growth rate numbers ran far below their targeted levels.
This article looks at the successes and failures of the current expansionary monetary policy regimes in the world with particular emphasis on the economies employing the negative interest rate policy.
What is Negative interest rate policy?
A negative interest rate policy is a monetary policy tool whereby nominal target interest rates are set with a negative value.
Rationale for Negative Interest Rate Policy
During periods of economic downturn and deflationary pressures, central banks often lower rates to stimulate growth and to raise the inflation rate. The main objective of negative rates is that they provide an incentive for private banks to make loans. With the negative interest in place, storing money at the central bank in the form of reserves or holding lots of cash will become unattractive and projects that were not worth funding even in a low-interest-rate environment might now look worthwhile.
In some cases, central banks turn to negative rates to lower…