Negative interest rates: Causes and consequences

Abstract

As of mid-2016, almost one-third of global economy has been affected by negative interest rates. Nevertheless, the prevailing opinion among influential policymakers has been that the nominal interest rates are essentially zero-bound. Thus, it’s not really clear what caused the recent breach of the zero percent level in many countries, and further, whether the US economy will also experience negative nominal interest rates. This article explains the following: (1) the arguments for the zero-bound on nominal interest rates, (2) the causes of the breach of the zero percent level, and (3) the implications for investors.