{"id":19902,"date":"2016-04-13T12:39:53","date_gmt":"2016-04-13T17:39:53","guid":{"rendered":"http:\/\/olduvai.ca\/?p=19902"},"modified":"2016-04-13T12:39:53","modified_gmt":"2016-04-13T17:39:53","slug":"whats-wrong-with-negative-rates","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=19902","title":{"rendered":"What\u2019s Wrong With Negative Rates?"},"content":{"rendered":"
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What\u2019s Wrong With Negative Rates?<\/a><\/h3>\n

NEW YORK \u2013 I\u00a0wrote<\/a>\u00a0at the beginning of January that economic conditions this year were set to be as weak as in 2015, which was the worst year since the global financial crisis erupted in 2008. And, as has happened repeatedly over the last decade, a few months into the year, others\u2019 more optimistic forecasts are being revised downward.<\/p>\n<\/header>\n

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The underlying problem \u2013 which has plagued the global economy since the crisis, but has worsened slightly \u2013 is lack of global aggregate demand. Now, in response, the European Central Bank (ECB) has stepped up its stimulus, joining the Bank of Japan and a couple of other central banks in showing that the \u201czero lower bound\u201d \u2013 the inability of interest rates to become negative \u2013 is a boundary only in the imagination of conventional economists.<\/p>\n

<\/section>\n

And yet, in none of the economies attempting the unorthodox experiment of negative interest rates has there been a return to growth and full employment. In some cases, the outcome has been unexpected: Some lending rates have actually increased.<\/p>\n

It should have been apparent that most central banks\u2019 pre-crisis models \u2013 both the formal models and the mental models that guide policymakers\u2019 thinking \u2013 were badly wrong. None predicted the crisis; and in very few of these economies has a semblance of full employment been restored. The ECB famously raised interest rates twice in 2011, just as the euro crisis was worsening and unemployment was increasing to double-digit levels, bringing deflation ever closer.<\/p>\n

They continued to use the old discredited models, perhaps slightly modified. In these models, the interest rate is the key policy tool, to be dialed up and down to ensure good economic performance. If a positive interest rate doesn\u2019t suffice, then a negative interest rate should do the trick.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

What\u2019s Wrong With Negative Rates? NEW YORK \u2013 I\u00a0wrote\u00a0at the beginning of January that economic conditions this year were set to be as weak as in 2015, which was the worst year since the global financial crisis erupted in 2008. And, as has happened repeatedly over the last decade, a few months into the year, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[233,282,460,534,558,1389,8402],"class_list":["post-19902","post","type-post","status-publish","format-standard","hentry","category-economics","tag-ecb","tag-european-central-bank","tag-joseph-stiglitz","tag-monetary-policy","tag-negative-interest-rates","tag-nirp","tag-project-syndicate"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/19902","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=19902"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/19902\/revisions"}],"predecessor-version":[{"id":19903,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/19902\/revisions\/19903"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=19902"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=19902"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=19902"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}