miércoles, 29 de julio de 2015

miércoles, julio 29, 2015

ECONOMISTS NO LONGER SO NEGATIVE ON NEGATIVE RATES

By Paul Hannon

Friday, July 24, 2015


Bloomberg News

Is it time to make negative interest rates a standard part of the central banker’s tool kit? A surprisingly large number of economists seem to think so.

Even before they finally decide that the time is right for liftoff, central bankers in the U.S. and the U.K. have been making it clear that in this cycle, their key policy rates will rise only gradually, and peak at levels well below those that were considered normal before the financial crisis.

But what happens if the U.S. and U.K. economies enter a sharp downturn in the next few years? That’s not an unlikely turn of events, since in both cases the current economic expansion is already relatively long lived.

With growth slowing, and inflation likely remaining low, policy makers might quickly be confronted once again with what is known as the zero lower bound–or ZLB. Until recently, it was thought that policy rates could not go negative, because there would be an immediate flight to cash, which can be thought of as a zero-interest bearer bond.

But then some European central banks started to set policy rates marginally below zero, and there was no widespread flight to cash or massive disruption of the financial system, probably because it’s quite costly and risky to hold cash in large amounts.

That experience has led economists to question the existence of the ZLB. According to a survey released earlier this week, a significant minority of U.K. economists now think that “materially” negative interest rates could be an option for central bankers, where “materially” means between 2% and 3%. Right now, the Swiss National Bank and the Danish central bank have gone furthest below the putative ZLB with deposit rates of minus 0.75%.

So there may be an alternative to quantitative easing, a stimulus policy which has its own limitations and downsides. Of course, a majority of the economists surveyed still think negative rates are a bad idea, including Nobel laureate Christopher Pissarides of the London School of Economics, who views such an option as weakening both the transparency and simplicity of current monetary policy frameworks.

But the same can be said for QE, and it no longer seems as “unconventional” as it once did.

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