Low for Longer: Effects of Prolonged Negative Interest Rate Policies

08-06-2021

In June 2014, the European Central Bank (ECB) was among the first major central banks to lower policy rates into negative territory. The deposit facility rate was subsequently cut four more times, lastly in September 2019 (to -0.5%). As an unconventional monetary policy instrument used over a prolonged period, negative interest rates require attention because of their uncertain or possibly negative side effects on the banking sector and economy at large. Four papers were prepared by the ECON Committee’s Monetary Expert Panel, assessing the experience with negative interest rates in the euro area over the past seven years. This publication is provided by Policy Department A for the Committee on Economic and Monetary Affairs (ECON), ahead of the Monetary Dialogue with ECB President Lagarde on 21 June 2021.

In June 2014, the European Central Bank (ECB) was among the first major central banks to lower policy rates into negative territory. The deposit facility rate was subsequently cut four more times, lastly in September 2019 (to -0.5%). As an unconventional monetary policy instrument used over a prolonged period, negative interest rates require attention because of their uncertain or possibly negative side effects on the banking sector and economy at large. Four papers were prepared by the ECON Committee’s Monetary Expert Panel, assessing the experience with negative interest rates in the euro area over the past seven years. This publication is provided by Policy Department A for the Committee on Economic and Monetary Affairs (ECON), ahead of the Monetary Dialogue with ECB President Lagarde on 21 June 2021.

External author

Grégory CLAEYS, Joscha BECKMANN, Klaus-Jürgen GERN, Nils JANNSEN, Justus INHOFFEN, Atanas PEKANOV, Thomas URL, Daniel GROS, Farzaneh SHAMSFAKHR