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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 Cato Journal 40(3).
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. Our view is that the lesson from Sweden is clear: a negative central bank polity rate is not a panacea. (Less)
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organization
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publication status
published
subject
keywords
negative interest rates, monetary policy, central banks, Riksbank, Sweden, financial crisis, covid19
in
Cato Journal
volume
40
issue
3
publisher
Cato Institute, Washington, DC
external identifiers
  • scopus:85099909616
ISSN
0273-3072
language
English
LU publication?
yes
id
7044a426-5955-4ff5-9456-5e5331a6e85f
alternative location
https://www.cato.org/sites/cato.org/files/2020-09/cj-v40n3-2.pdf
date added to LUP
2020-08-10 08:45:59
date last changed
2021-03-23 22:57:59
@article{7044a426-5955-4ff5-9456-5e5331a6e85f,
  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. Our view is that the lesson from Sweden is clear: a negative central bank polity rate is not a panacea.},
  author       = {Andersson, Fredrik N G and Jonung, Lars},
  issn         = {0273-3072},
  language     = {eng},
  month        = {11},
  number       = {3},
  publisher    = {Cato Institute, Washington, DC},
  series       = {Cato Journal},
  title        = {Lessons from the Swedish experience with negative central bank rates.},
  url          = {https://www.cato.org/sites/cato.org/files/2020-09/cj-v40n3-2.pdf},
  volume       = {40},
  year         = {2020},
}