Zero lower bound

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Monetary policy - interest rates.


Zero lower bound is an assumption that interest rates should not be, or cannot be, lower than zero.

The assumption is that, if interest rates were negative, then - among other undesirable effects - physical cash would be hoarded (because it would be financially beneficial to hold physical cash, rather than depositing it).

In practice, a number of central banks have implemented negative official interest rates.

For example, the European Central Bank fixed a negative rate in 2014 for interest on excess reserves.

Sometimes expressed as Zero Nominal Lower Bound (ZNLB), emphasising that the rates in question are conventional nominal interest rates (rather than inflation adjusted 'real' rates).

See also