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Several central banks have been experimenting with negative interest rates in recent years to support the economy. They try to discourage saving and encourage people to consume more. However, there are doubts about the effectiveness of this policy. So Ended the Swedish central bank began its five-year experiment with negative interest rates this year. The positive effects would not outweigh the adverse side effects.
The fact that negative interest rates do not work is now also evident from a new research in the Journal of Behavioral and Experimental Economics. The research shows that the negative side effects outweigh the positive effects. Lior David-Pur, who participated in the study, concluded that a zero percent interest rate is even more effective than a negative interest rate.
The researchers studied the behavior of 205 economics students divided into four groups. They were all given a certain fictitious amount, which they had to divide between a savings account and an investment portfolio. In addition, the students were given the opportunity to invest with borrowed money. The four groups were given different interest rates to work with, so the researchers could measure the effect of different interest rates.
The outcome of the study was that people were willing to take more risk when interest rates were cut from 1% to 0%. They also borrowed more money. In the case of negative interest rates, the opposite happened, because the willingness to borrow decreased. On the other hand, negative interest rates made participants more cautious.
The explanation for this outcome is that negative interest rates are associated with an emergency. It signals that something is wrong with the economy. As a result, people will save more money and spend less. For example, negative interest rates can have the opposite effect of what central banks are trying to achieve, which is to stimulate the economy.
In Sweden, too, negative interest rates did not have the desired effect. Professor Fredrik N G Andersson researched negative interest rates and discovered that when interest rates were negative, people mainly borrowed more money to buy a house. As a result, house prices continued to rise and people went deeper into debt. Partly because of these unfavorable side effects, the central bank decided to bring interest rates back to zero percent this year.
Since the introduction of negative interest rates by the ECB, banks in the eurozone have paid a total of €25 billion in penalty interest. In Switzerland, too, banks have had to pay interest to the central bank in recent years to park savings. Banks pass these costs on to savers, which means that savers hoard more money. If interest rates remain negative for any longer, banks will pass on a larger part of these costs to customers. As a result, Buy gold Even more attractive, because the precious metal does not have negative interest rates.
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This contribution was made from Geotrendlines
