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Impact of Negative Interest Rate Policy on Emerging Asian markets: An Empirical Investigation

Abhishek Anand () and Lekha cHAKRABORTY ()
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Abhishek Anand: Harvard Kennedy School, Cambridge

Working Papers from National Institute of Public Finance and Policy

Abstract: In last few years, several central banks have implemented negative interest rate policies (NIRP) to boost domestic economy. However, such policies may have some unintended consequences for the emerging Asian markets (EAMs). The objective of this paper is to provide an assessment of the domestic and global implications of negative interest rate policy. We also present how the implications differ from that of quantitative easing (QE). The analysis shows that the impact NIRP is heterogeneous; with differential impacts for big Asian economies (India and Indonesia)and small trade dependent economies (STDE) (Hong Kong, Philippines, South Korea, Singapore and Thailand). Nominal GDP and exports are adversely impacted in EMs in response to NIRP, especially in India and Indonesia. The inflation goes significantly high in EMs in response to plausible negative interest rates but the impact is much more severe for India and Indonesia than in STDEs. The local currencies also depreciate in all EAMs in response to negative interest rates. QE, on the other hand, has no significant impact on inflation but nominal GDP growth declines in EAMs. The currency appreciates and exports decline. The impact is much more severe in big emerging economies like India and Indonesia.

Keywords: Negative interest rate policy; Quantitative easing; emerging economies (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 30
Date: 2020-06
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-sea
Note: Working Paper 307, 2020
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