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Negative Interest Rates

1
University of California, Riverside, CA 92521, USA
2
Glendale Community College, Glendale, CA 91208, USA
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Author to whom correspondence should be addressed.
J. Risk Financial Manag. 2020, 13(5), 90; https://doi.org/10.3390/jrfm13050090
Received: 10 February 2020 / Revised: 5 May 2020 / Accepted: 5 May 2020 / Published: 7 May 2020
Negative interest rates are an invention of monetary authorities to show that monetary activism does not have boundaries, i.e., as if there is no such thing as a liquidity trap. Their presence in the financial landscape has redefined the benefits to savers and to investors. Governments can now borrow at will without visibly adding to budget deficits. This makes negative interest borrowing an alternative to raising taxes. Banks can now achieve regulatory compliance partially at the expense of depositors. Commercial banks pay to keep money at the central bank instead of earning interest on it. This paper shows the true nature of negative interest rates and their consequences on various economic agents and performance measures, specifically on economic growth and exchange rates. In addition, this paper demonstrates that the arguments in favor of negative interest rates have been largely exaggerated based on the weight of the evidence that shows the United States, which never issued negative interest rates debt, is a leader among developed countries in terms of economic growth in a non-inflationary environment. View Full-Text
Keywords: negative rates; nominal rates; exchange rates; monetary policy; fiscal policy; saving rates; budget deficits; economic growth negative rates; nominal rates; exchange rates; monetary policy; fiscal policy; saving rates; budget deficits; economic growth
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Khoury, S.J.; Pal, P.C. Negative Interest Rates. J. Risk Financial Manag. 2020, 13, 90.

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