when people hoard money rather than spend or invest it aggregate demand collapses this leads to prices falling even further a slowdown or halt in real production and output and an increase in unemployment 
a loose or expansionary monetary policy is usually employed to deal with such economic stagnation however if deflationary forces are strong enough simply cutting the central bank s interest rate to zero may not be sufficient to stimulate borrowing and lending but it s still not clear if a nirp is effective in achieving the goal in the countries that established it and in the way it was intended it s also unclear whether or not negative rates have successfully spread beyond excess cash reserves in the banking system to other parts of the economy individual depositors aren t charged negative interest rates on their bank accounts example of negative interest ratescentral banks in europe scandinavia and japan have implemented a negative interest rate policy on excess bank reserves in the financial system 3 this unorthodox monetary policy tool is designed to spur economic growth through spending and investment depositors would be incentivized to spend cash rather than store it at the bank and incur a guaranteed loss 