Negative interest rates are counterproductive [Brookings Institution]

Central bankers in several countries have entered the “neverland” of negative interest rates in an effort to promote economic growth and boost price inflation to 2 percent per year. These countries include Denmark, Switzerland, Sweden and Japan as well as the European Central Bank.

These central bankers apparently believe that negative interest rates will motivate consumers to save less and spend more. In turn, higher consumer spending will allegedly induce companies to invest in new products and facilities — thus, promoting economic growth and raising consumer prices.

However, negative interest rates have so far not produced the desired behavioral changes of consumers or companies. While there are many possible explanations for these non-results, I believe that many central bankers have underestimated the adverse psychological and political effects of their unusual monetary policies.

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