Special issue: Implications of ultra‐low and negative interest rates

• Published date: 01 February 2018
• Author: Pornpinun Chantapacdepong,Joshua Aizenman,Yin‐Wong Cheung
• Date: 01 February 2018
• DOI: http://doi.org/10.1111/1468-0106.12248

INTRODUCTION

Special issue: Implications of ultra-low and negative

interest rates

Joshua Aizenman

1,2

| Yin-Wong Cheung

3

| Pornpinun Chantapacdepong

4,5

1

Dockson Chair in Economics and International Relations Economics department, University of South California, Los Angeles, California

2

Research Associate, NBER, Cambridge, Massachusetts

3

Hung Hing Ying Chair Professor of International Economics, Department of Economics and Finance, City University of Hong Kong,

Hong Kong

4

Research Fellow, Asian Development Bank Institute, Tokyo, Japan

5

Assistant Director, Balance of Payments Analysis Division, Bank of Thailand, Bangkok, Thailand

Correspondence

Yin-Wong Cheung, City University of Hong Kong, Hong Kong.

Email: yicheung@cityu.edu.hk

Pornpinun Chantapacdepong, Asian Development Bank Institute

and Bank of Thailand.

Email: pornpinc@bot.or.th

For a number of years, the central banks of the major advanced economies have implemented

quantitative easing (QE) policies and have also pursued unprecedented ultra-low interest rate pol-

icies to resolve crises and to support growth. To commit to additional policy easing, many central

banks, namely, the European Central Bank, the Swiss National Bank, Sveriges Riksbank, Dan-

marks NationalBank, the Bank of Japan and the Hungarian Central Bank, have further implemen-

ted a negative interest rate policy (NIRP). It is a negative rate on commercial banks’excess

funds held on deposit at the central bank, effectively taxing banks for hoarding cash.

The efficacy of NIRP in lifting growth and inflation remains unknown. However, concerns over

a range of possible financial stability risks and unintended consequences of NIRP have been voiced,

including financial market distortions, asset price bubbles, deterioration of banks’balance sheets,

weakening of banks’willingness to lend, and delayed implementation of necessary macroeconomic

and structural policies (Arteta, Kose, Stocker, & Taskin, 2016; Carney, 2016; White, 2014). Like

other unconventional monetary policy measures, NIRP could also have spillover effects on the

financial markets of emerging market and developing economies through, say, “yield chasing”

behaviour. It has long been argued that asset prices in Asian financial markets are affected by mone-

tary policies of advanced economies more than their own policies and fundamentals. Consequently,

Asia may be affected disproportionately by volatile swings in currencies, international capital flows,

and increasing external debt levels triggered by NIRP deployed by advanced economies.

The theme of the 19th Asian Development Bank Institute (ADBI) Annual Conference, which

washeldon1–2 December 2016 in Tokyo, Japan, was the implications of ultra-low and nega-

tive interest rates for Asia. The annual conference is part of ABDI’s continuous efforts in pro-

viding intellectual input and conducting high-level research on issues with strategic implications

Received: 1 December 2016 Accepted: 1 April 2017

DOI: 10.1111/1468-0106.12248

Pac Econ Rev. 2018;23:3–7. wileyonlinelibrary.com/journal/paer © 2018 John Wiley & Sons Australia, Ltd 3