Negative externality

Central banks - monetary policy - unconventional monetary policy.

(NIRP).

In response to the Global Financial Crisis some central banks set negative policy interest rates.

"They found that, overall, this strategy was effective... long-term yields adjusted downwards in line with expectations of future short-term rates, thus providing the desired expansionary stimulus.

Although side effects, such as the compression of bank interest margins, were detected, they have not posed a major problem for banking stability to date because of offsets from other sources of income and the eventual recovery of bank portfolio values, including [a reduction] in non-performing loans.

That said, the potential longer-term effects of a prolonged period of negative rates on intermediaries cannot be fully assessed on the basis of current experience."

Source: 'Unconventional monetary policy tools: a cross country analysis'. Committee on the Global Financial System. October 2019

See also

• Central bank
• Committee on the Global Financial System
• Effective lower bound
• Forward guidance
• Global Financial Crisis
• Lending operations
• Margin compression
• Non-performing loan
• Policy interest rate
• Quantitative easing
• Reserve requirements
• Sterling Monetary Framework
• Supply side policy
• Unconventional monetary policy
• Zero lower bound
• ZLB problem