The Consequences of Ultra-low and Negative Interest Rates on the Real Economy

Details

Supervisors

Pouchain, Frédéric

Faculty

Louvain School of Management

Degree label

Master [120] en sciences de gestion

Abstract

This research aims at analysing the consequences of ultra-low and negative interest rates on the real economy in three economic blocs: the United States, Japan, and the Eurozone. We give an extensive account of the most relevant central bank tools with a focus on money and interest rates. The consequences expected by central banks and academics when implementing expansionary policies are then reviewed. Subsequently, through a data-based verification, we show that monetary policy close to or below the zero lower bound is partly ineffective. Even though consumption rates are on the increase and there is a decline in the unemployment rate, actual data does not clearly back an increase of the inflation rate or a depreciation of the currency. Based on our results, we come to question the effectiveness of current monetary policies, as well as their alignment with a new economic reality.