Title: Analyzing the Effects of Negative Interest Rates | Toptal
Headings: Analyzing the Effects of Negative Interest Rates Across Five Economies
Analyzing the Effects of Negative Interest Rates Across Five Economies
What Nations Have Experienced Negative Base Rates?
History of Central Bank Base Rates for Negative Interest Rate Nations: 2012 - 2019
The Importance of the Base Rate
Motivation #1: Stimulating Inflation
Japan: A Failure to Address the Elephant in the Room
Eurozone: Compromises of Disparity
Sweden: Importing Inflation
Motivation #2: Defending Currencies
Switzerland: Safe Haven Surges
Denmark: A Game of Krones
How Have the Effects of Negative Interest Rates Been Limited?
1. They Create New Bubbles
2. Consumer Psychology is Idiosyncratic
3. Paper Money is Slippery
Percentage Usage of Paper Money in Major Economies (2017)
4. Regulation Can Contradict Monetary Policy
5. Seepage is Inevitable
Are Governments Addicted to Negative Interest Rates?
Share of Global Bond Market by Yield Bucket: 1996 - 2019
Understanding the basics
How do negative interest rates work?
Why are Japanese interest rates so low?
Does Sweden have negative interest rates?
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Content: The Importance of the Base Rate
Central banks set base rates, which can come with a variety of names such as target rate, policy rate, official bank rate, or repo rate. Essentially, these all variedly describe the bid (and offer) that the central bank will pay to licensed banks to deposit (or borrow) overnight funds. As overnight deposits to the most creditworthy institution in the nation (if a central bank becomes insolvent, then its economy will have collapsed entirely) this interest rate is effectively a country’s risk-free rate. The basis of this rate will define domestic yield curves, ranging from the government itself to corporate and consumer credit products. Now, let’s look at the effects of negative interest rates and why central banks turned to them in the first place. Motivation #1: Stimulating Inflation
Japan: A Failure to Address the Elephant in the Room
Following an asset bubble collapse that began in 1991, Japan had to contend with The Lost Decade of economic stagnation that some argue continued for a total of 20 years. Japan’s economy has been in first gear since its collapse, with the Nikkei 225 Index still trading at around 50% of its 1989 all-time high. Inflation (or lack thereof) has been the bane of Japan’s economy, and The Bank of Japan has tried all manners of policies such as low rates, money printing, and quantitative easing to stimulate growth.