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Lessons from the Swedish Experience with Negative Central Bank Rates

Andersson, Fredrik N G LU and Jonung, Lars LU (2020) In Working Papers
Abstract
Negative interest rates were once seen as impossible outside the realm of economic theory. However, several central banks have recently adopted negative policy rates. The Federal Reserve is coming under increasing pressure to follow suit in the wake of the coronavirus crisis. This paper investigates the actual effects of negative interest rates using the Swedish experience from 2015 to 2019. The Swedish Riksbank was one of the first central banks to introduce a negative interest rate in 2015 and the first central bank to abandon a negative rate in 2019. We find that negative rates had a modest effect on consumer price inflation due to globalization, but significant effects on the exchange rate and domestic asset prices, thus fostering... (More)
Negative interest rates were once seen as impossible outside the realm of economic theory. However, several central banks have recently adopted negative policy rates. The Federal Reserve is coming under increasing pressure to follow suit in the wake of the coronavirus crisis. This paper investigates the actual effects of negative interest rates using the Swedish experience from 2015 to 2019. The Swedish Riksbank was one of the first central banks to introduce a negative interest rate in 2015 and the first central bank to abandon a negative rate in 2019. We find that negative rates had a modest effect on consumer price inflation due to globalization, but significant effects on the exchange rate and domestic asset prices, thus fostering financial imbalances. We conclude by discussing the implications of our results for larger economies such as the United States. (Less)
Please use this url to cite or link to this publication:
author
and
organization
publishing date
type
Working paper/Preprint
publication status
published
subject
keywords
Monetary policy, Inflation targeting, Sweden, United States, Negative interest rates, Forward guidance, Quantative easing, D78, E40, E43, E47, E50, E52, E65
in
Working Papers
issue
2020:15
pages
20 pages
language
English
LU publication?
yes
id
cb2a1abe-d51b-47ff-890c-5f954ec180f9
alternative location
https://swopec.hhs.se/lunewp/abs/lunewp2020_015.htm
date added to LUP
2020-09-02 11:13:28
date last changed
2021-09-27 11:11:12
@misc{cb2a1abe-d51b-47ff-890c-5f954ec180f9,
  abstract     = {{Negative interest rates were once seen as impossible outside the realm of economic theory. However, several central banks have recently adopted negative policy rates. The Federal Reserve is coming under increasing pressure to follow suit in the wake of the coronavirus crisis. This paper investigates the actual effects of negative interest rates using the Swedish experience from 2015 to 2019. The Swedish Riksbank was one of the first central banks to introduce a negative interest rate in 2015 and the first central bank to abandon a negative rate in 2019. We find that negative rates had a modest effect on consumer price inflation due to globalization, but significant effects on the exchange rate and domestic asset prices, thus fostering financial imbalances. We conclude by discussing the implications of our results for larger economies such as the United States.}},
  author       = {{Andersson, Fredrik N G and Jonung, Lars}},
  keywords     = {{Monetary policy; Inflation targeting; Sweden; United States; Negative interest rates; Forward guidance; Quantative easing; D78; E40; E43; E47; E50; E52; E65}},
  language     = {{eng}},
  month        = {{08}},
  note         = {{Working Paper}},
  number       = {{2020:15}},
  series       = {{Working Papers}},
  title        = {{Lessons from the Swedish Experience with Negative Central Bank Rates}},
  url          = {{https://swopec.hhs.se/lunewp/abs/lunewp2020_015.htm}},
  year         = {{2020}},
}