Negative nominal rates
Dávila J. Lukmanova E.
September 2025Elsevier B.V.
Journal of Financial Stability
2025#80
We show the possibility of negative nominal interest rates in a general equilibrium model with financial intermediation. We establish that the decentralization of the planners steady state requires a zero nominal lending rate on bank loans to firms, as well as a negative nominal lending rate on central bank loans to banks. We also find that implementing the planners steady state requires firms to be bound by collateral requirements that limit their leverage. The key driver of the results is the very defining characteristic of banking, namely banks’ ability to create money by opening deposit accounts that borrowers can withdraw from, and that are unbacked by household deposits. Our results can be used to rationalize the ultra-low rates policy implemented by major central banks in the second half of the 2010’s and early 2020’s.
Financial intermediation , General equilibrium , Negative interest rates
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Nazarbayev University, School of Sciences and Humanities, Department of Economics, 53 Kabanbay Batyr Ave., Astana, 010000, Kazakhstan
Central Bank of Ireland, New Wapping Street, North Wall Quay, Dublin 1, D01 F7X3, Ireland
KU Leuven, Faculty of Economics and Business, Department of Accountancy, Finance and Insurance, Naamsestraat 69, box 3525, Leuven, 3000, Belgium
Nazarbayev University
Central Bank of Ireland
KU Leuven
10 лет помогаем публиковать статьи Международный издатель
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