Will the U.S. Adopt Negative Interest Rates as a Result of COVID-19?
Mentor Information
Michael Snipes (Department of Economics)
Description
Negative interest rates (NIRs) are a monetary policy used by central banks or the Federal Reserve to stimulate an economy. They have become widespread in Europe and Japan following the 2008 economic crisis, but this has not yet occurred in the U.S. Analyzing the effects of NIRs on the financial markets in Europe and Japan will help to determine whether they have been beneficial in terms of stimulating their economies. Economic weakness drove these countries to go negative to fight inflation; furthermore, it created savers who prefer safety to take risks in order to earn more. The reason for studying the possible effects of NIRs on the financial markets and economy in the U.S. is that the Federal Reserve has recently cut rates to 0–0.25% to stimulate economic growth. There is a possibility that the U.S. will follow Europe and Japan. However, the interest rates will stay low for some time until reaching negative values. This paper seeks to determine if there is a correlation between NIRs and economic activity in the countries selected for the years 2009–2020 (particularly in countries with initial negative rates, e.g., Denmark, Japan, and Switzerland) through a historical comparative analysis.
Will the U.S. Adopt Negative Interest Rates as a Result of COVID-19?
Negative interest rates (NIRs) are a monetary policy used by central banks or the Federal Reserve to stimulate an economy. They have become widespread in Europe and Japan following the 2008 economic crisis, but this has not yet occurred in the U.S. Analyzing the effects of NIRs on the financial markets in Europe and Japan will help to determine whether they have been beneficial in terms of stimulating their economies. Economic weakness drove these countries to go negative to fight inflation; furthermore, it created savers who prefer safety to take risks in order to earn more. The reason for studying the possible effects of NIRs on the financial markets and economy in the U.S. is that the Federal Reserve has recently cut rates to 0–0.25% to stimulate economic growth. There is a possibility that the U.S. will follow Europe and Japan. However, the interest rates will stay low for some time until reaching negative values. This paper seeks to determine if there is a correlation between NIRs and economic activity in the countries selected for the years 2009–2020 (particularly in countries with initial negative rates, e.g., Denmark, Japan, and Switzerland) through a historical comparative analysis.
