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What Are the Effects of the ECB’s Negative Interest Rate Policy?

Summary:
This paper explores the potential effects (and side effects) of negative rates in theory and examines the evidence to determine what these effects have been in practice in the euro area. Several central banks, including the European Central Bank since 2014, have added negative policy rates to their toolboxes after exhausting conventional easing measures. It is essential to understand the effects on the economy of prolonged negative rates. This paper explores the potential effects (and side effects) of negative rates in theory and examines the evidence to determine what these effects have been in practice in the euro area. This paper was prepared for the European Parliament’s Committee on Economic and Monetary Affairs (ECON) as an input to the Monetary Dialogue of 21 June 2021 between

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This paper explores the potential effects (and side effects) of negative rates in theory and examines the evidence to determine what these effects have been in practice in the euro area.

Several central banks, including the European Central Bank since 2014, have added negative policy rates to their toolboxes after exhausting conventional easing measures. It is essential to understand the effects on the economy of prolonged negative rates. This paper explores the potential effects (and side effects) of negative rates in theory and examines the evidence to determine what these effects have been in practice in the euro area.

This paper was prepared for the European Parliament’s Committee on Economic and Monetary Affairs (ECON) as an input to the Monetary Dialogue of 21 June 2021 between ECON and the President of the European Central Bank.

Grégory Claeys
Grégory Claeys, a French and Spanish citizen, joined Bruegel as a research fellow in February 2014. Grégory’s research interests include international macroeconomics and finance, central banking and European governance. From 2006 to 2009 Grégory worked as a macroeconomist in the Economic Research Department of the French bank Crédit Agricole.

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