QuickTake: Central Banks at Less Than Zero

The video discusses the adoption of negative interest rates by central banks in Europe and Japan as a strategy to stimulate their economies. It highlights the Bank of Japan's recent move to adopt negative rates, following the European Central Bank and others. The video explains the potential benefits of negative rates, such as encouraging banks to lend more, but also warns of the risks, including market distortions and reduced bank profits. The discussion includes the impact on financial markets, particularly fixed income, and the broader economic implications, such as preventing deflation and potential currency issues.

Which central bank was the latest to adopt negative interest rates as of January?

• Bank of Japan

• Bank of England

• Federal Reserve

• European Central Bank

What is one major consequence of negative interest rates on government bonds?

• Distortion in fixed income markets

• Investors receive all their money back

• Increased bond yields

• Higher interest rates for loans

What do negative interest rates signal about traditional policy options?

• They are highly effective

• They have been exhausted

• They are not needed

• They are only partially effective

What is a potential risk of banks charging customers to hold their money?

• Higher savings rates

• Cash being stored at home

• More loans to businesses

• Increased bank profits

What concern arises if more central banks use negative rates as a stimulus tool?

• Stronger economic growth

• Higher interest rates

• Currency devaluation

• Increased inflation