Discussion Paper

If Interest Rates Go Negative . . . Or, Be Careful What You Wish For

Abstract: The United States has slid into eight recessions in the last fifty years. Each time, the Federal Reserve sought to revive economic activity by reducing interest rates (see chart below). However, since the end of the last recession in June 2009, the economy has continued to sputter even though short-term rates have remained near zero. The weak recovery has led some commentators to suggest that the Fed should push short-term rates even lower?below zero?so that borrowers receive, and creditors pay, interest.

Keywords: Negative interest rates;

JEL Classification: E5;G2;G1;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2012-08-29

Number: 20120829