Review of Keynesian Economics on the economics of negative interest rates

We are delighted to announce the publication of Volume 7, Issue 2 of the Review of Keynesian Economics. We invite you to visit the website where you can read all the article abstracts and download two free articles.

Over the last several years economic recovery has led to some monetary tightening in the United States, but it is likely that a future recession will restore the issue of negative interest rates to the fore of policy debate. That is also true for Europe where there has been a weaker recovery in the euro zone and the European Central Bank still has a zero interest rate. In many ways, as participants in this symposium suggest, negative interest rate policy (NIRP) is a throwback to pre-Keynesian ideas according to which interest rates can adjust private spending to a level compatible with full employment.

This issue of ROKE presents a symposium on negative interest rates. The papers provide the elements for a critical analysis of the theory and practice of NIRP, with the aim of enriching the Keynesian literature on alternative monetary policy. We hope you enjoy them.

Thomas Palley, Esteban Pérez Caldentey & Matías Vernengo
Co-Editors

Are Negative Interest Rates Dangerous? A debate on negative interest rates

A debate between Tom Palley and Adam Posen. From Tom's argument:

A negative interest rate policy (NIRP) appears revolutionary, but its justification rests on failed, pre-Keynesian “clas- sical” economics. This claims that lower interest rates can al- ways solve aggregate demand shortages and lead to full employment. Keynes discredited classical economics by showing that saving and investment might not respond, as assumed, to lower interest rates.

Read the debate here.

CALL FOR PAPERS: Special issue of ROKE on 'Monetary policy and negative nominal interest rates'

In light of increased unemployment, the absence of strong economic growth and the threat of deflation in many countries, the recent financial crisis led many to expect a shift in monetary policy. Central banks were at the forefront of these changes, by shunning ‘conventional’ policies in favor of so-called unconventional ones. After experimenting with Quantitative Easing, a number of countries have recently officially adopted negative interest rates in the hope of reviving their moribund economies. Today, the Swiss National Bank, the Bank of Japan, the Bank of Sweden and others, have all gone negative.

However, nearly two years after Switzerland adopted the policy in January 2015, there are questions regarding its success, and overall consequences on economic activity. At the empirical level, negative rates did not increase bank lending and has even generated unexpected and perverse effects. At the theoretical level, questions remain regarding the neoclassical/money multiplier model upon which such policies are based.

Finally, on the epistemological level, many questions arise: what monetary policy? What should be its objectives, means, and instruments? What are the challenges that monetary policy must now face? At the heart of this policy debate is the insistence of using monetary policy to stimulate growth, as opposed to the use of fiscal policy. It begs the question of whether monetary policy is still the most relevant policy to use in periods of slow economic growth, or secular stagnation-type conditions.

This special issue aims to make a major scientific contribution to the conduct of monetary policies of negative interest rates. Proposals can be very diverse in nature (empirical, theoretical, and epistemological) and from various theoretical backgrounds. The purpose is to encourage discussion on a very important policy question.

The issue will be co-edited by Louis-Philippe Rochon and Guillaume Vallet. Please note the following deadlines: deadline for submitting an abstract: February 1, 2017; deadline for submitting the final paper is September 1, 2017.

All papers will be subject to a double-blind peer-review.  Please send us a prior email to let us know your intent on submitting a paper. All correspondence should be addressed to guillaume.vallet@univ-grenoble-alpes.fr