ADBI Working Paper Series
CENTRAL BANKING BELOW ZERO:
THE IMPLEMENTATION OF NEGATIVE
INTEREST RATES IN EUROPE AND JAPAN
Stefan Angrick and Naoko Nemoto
No. 740
May 2017
Asian Development Bank Institute
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Suggested citation:
Angrick, S. and N. Nemoto. 2017. Central Banking Below Zero: The Implementation of
Negative Interest Rates in Europe and Japan. ADBI Working Paper 740. Tokyo: Asian
Development Bank Institute. Available: https://adb/publications/central-banking-
below-zero-negative-interest-rate-policies-europe-japan
Please contact the authors for information about this paper.
Email: sangrick@adbi, nnemoto@adbi
The authors wish to thank Gunther Schnabl, Michael M. Hutchison, James McAndrews,
Narayana Kocherlakota, Nao Sudo, Tamim Bayoumi, Joseph E. Gagnon, Pornpinun
Chantapacdepong, Sayuri Shirai, and the attendees of the ADBI Annual Conference
2016 for their helpful comments and suggestions during the preparation of this paper. We
further thank David Storey for his excellent research assistance. The views expressed
herein are those of the authors, as are any remaining errors.
Stefan Angrick is research associate and Naoko Nemoto is financial economist at the
Asian Development Bank Institute.
The views expressed in this paper are the views of the author and do not necessarily
reflect the views or policies of ADBI, ADB, its Board of Directors, or the governments
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ADBI Working Paper 740 Angrick and Nemoto
Abstract
This paper provides an overview of the operational implementation of negative interest rates
in Europe and Japan. Drawing attention to the fact that there is precedent for negative policy
rates and negative money market rates, the paper addresses conceptual issues and
summarizes measures which define negative interest rate policy. Based on detailed
institutional analysis and an examination of the interaction of negative interest rate policies
with balance sheet policies, it is argued that there is substantial heterogeneity in the purpose,
design and operational specificities of negative interest rate policies across economies, with
significant consequences for effective money market rates, private sector funding conditions,
and expectations. Summarizing transmission channels of negative rates to the real economy
and their potential benefits and risks, the paper calls attention to potential adverse effects
resulting from the interaction of negative interest rate policy with tighter liquidity and capital
standards adopted since the Global Financial Crisis.
Keywords: negative interest rates, central banking, policy rates, market rates, balance
sheet policies
JEL Classification: E5, E52, E58
ADBI Working Paper 740 Angrick and Nemoto
Abbreviations
BIS Bank for International Settlements
BNB Bulgarian National Bank (central bank of Bulgaria)
BOJ Bank of Japan (central bank of Japan)
CBBH Central Bank of Bosnia and Herzegovina (central bank of Bosnia and
Herzegovina)
DN Danmarks Nationalbank (central bank of Denmark)
ECB European Central Bank (central bank of the euro area)
ERM-II European Exchange Rate Mechanism II
IMF International Monetary Fund
MNB Magyar Nemzeti Bank (central bank of Hungary)
NB Norges Bank (central bank of Norway)
NIRP Negative Interest Rate Policy
QE Quantitative Easing
SR Sveriges Riksbank (central bank of Sweden)
SNB Swiss National Bank (central bank of Switzerland)
TARGET 2 Trans-European Automated Real-time Gross settlement Express Transfer
(the Eurosystem’s real-time gross settlement system)
TLTRO-II 2nd round of the ECB’s Targeted Longer-Term Refinancing Operations
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