Negative interest rates in the eurozone

Domenica Tropeano

Review of Keynesian Economics, 2019, vol. 7, issue 2, 233-246

Abstract: This paper reviews the eurozone's negative rate deposit facility and seeks to explain its rationale. The paper rejects the conventional explanation that the negative rate deposit facility improves the transmission mechanism of monetary policy and contributes to the economic recovery of the area. Instead, the paper argues that the rationale for the policy is to be found in the interbank market. The European unsecured interbank market has malfunctioned since the beginning of the global financial crisis in 2007. The negative policy rate is an extreme attempt to revive that market, but that attempt has failed. Rather than being a conventional policy, as some scholars have argued, the paper maintains that the policy is deeply unconventional because it does not target the overnight interest rate as the interbank market has effectively become irrelevant.

Keywords: negative; interest; rate; interbank market; euro (search for similar items in EconPapers)
JEL-codes: E4 E5 F36 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:elg:rokejn:v:7:y:2019:i:2:p233-246

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