Why negative rates are not a solution for Japan or the Eurozone

Abstract

Abstract. Since the Global Financial Crisis in 2008-09 four major central banks have implemented Quantitative Easing (QE) programs. However, the types of QE implemented by the Federal Reserve and the Bank of England on the one hand and the Bank of Japan (BoJ) and the European Central Bank on the other have been very different. In the case of the Fed and the Bank of England, the QE operations were consistent with an expansion of deposits in the banking system, a reduction of leverage in the non-bank private sector, and the gradual normalization of growth, interest rates and inflation. By contrast, the QE operations of the Bank of Japan and the ECB have not been consistent with an expansion of deposits in the banking system or a reduction of leverage in the non-bank private sector, and hence they have failed to promote the gradual normalization of growth, interest rates and inflation.

Keywords. Central bank; Quantitative Easing; Monetary policy; Currency boards, Japan.

JEL. E40; E42; E52.