Theoretical analysis of the negative interest rates environment

Details

Supervisors

Pensieroso, Luca ; Bucci, Alberto

Faculty

Faculté des sciences économiques, sociales, politiques et de communication

Degree label

Master [120] en sciences économiques, orientation générale, à finalité approfondie

Abstract

The aim of this mémoire is to analyze low (negative) interest rate environment. There has been a tendency for the nominal interest rates to decline and eventually almost reaching zero, thus implying a factual negativity of the real interest rates on deposits and alike; this condition should have caused an increase in the demand for cash but, apparently, this has not been the case. Electronic transaction means are overcoming the use of cash, thus reducing its demand. This occurrence may be justified by an incentive for the use of electronic credit provided by the banks. This incentive consists in a major safety and liquidity (and therefore, a decrease in the transaction costs) associated with this type of asset. I propose to formalize the theory of negative returns and liquidity preferences, therefore the allocation process of total money balances between two assets: cash and deposit.