Statist absurdities: Negative interest rates — but will they work?

Editor’s Note: When the European Central Bank made the unprecedented announcement of a negative interest rate policy (NIRP) early last month, we reached out to Benn Steil, director of international economics at the Council on Foreign Relations, for some perspective about what negative rates are intended to achieve and how everyday Europeans would be affected. Both he and former Fed economist Catherine Mann, now at Brandeis International Business School, were skeptical that the ECB’s two-pronged policy of one, pushing negative the interest rate at which banks hold their money at the ECB, and two, incentivizing banks to loan commercially with access to cheap funds, would necessarily do all that much to increase bank lending and stimulate the economy. (See “Will the European Central Bank’s negative interest rate be an economic positive?”)

Statist absurdities: Negative interest rates — but will they work? Draghi-1024x682

Statist absurdities: Negative interest rates — but will they work? Draghi-1024x682

Now, several weeks after NIRP went into effect, we return to Steil and CFR analyst Dinah Walker for a more data-driven analysis of how negative interest rates are playing in the eurozone. Their conclusion remains the same: the policy is unlikely to spur much eurozone growth without more ambitious banking interventions first.

Steil has previously contributed to Making Sen$e, writing about John Maynard Keynes and the Bretton Woods conference, both based on his book, “The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order.”

– Simone Pathe, Making Sen$e Editor

http://www.pbs.org/newshour/making-sense/the-new-new-thing-negative-interest-rates-but-will-they-work/

Statist absurdities: Negative interest rates — but will they work?

Statist absurdities: Negative interest rates — but will they work?

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