Marvin Goodfriend Explains How Negative Rates Can Work

The transcript discusses the concept of negative interest rates, their impact on banks, depositors, and pension funds, and the skepticism surrounding their effectiveness. It explores global experiments with negative rates, particularly in Europe and Japan, and the challenges faced by small economies like Sweden and Switzerland. The discussion also touches on currency issues and the potential future use of negative rates during economic crises.

What is a key limitation of implementing negative interest rates in the current regime?

• Public disintermediation limits the scope of negative rates.

• Central banks can easily push rates deeply negative.

• Banks are eager to cut retail deposit rates.

• Negative rates are widely accepted by the public.

Why are pension funds particularly affected by negative interest rates?

• They rely on short-term interest rates.

• They benefit from the plunge in real interest rates.

• They are not influenced by central bank policies.

• They depend on long-term interest rates, which are not controlled by central banks.

In which type of economies have negative interest rates shown some effectiveness?

• Small open economies

• Developing economies

• Economies with high inflation

• Large closed economies

What is Ken Rogoff's argument regarding large currency bills?

• They should be increased to boost the economy.

• They should be used more in small economies.

• They have no impact on negative interest rates.

• They should be eliminated to reduce corruption and facilitate negative rates.

What historical context is considered when discussing negative rates as a crisis tool?

• Interest rates during global recessions

• Interest rates in the 19th century

• Interest rates during economic booms

• Interest rates in developing countries

What is a potential benefit of using negative rates during a global recession?

• It increases long-term bond rates.

• It allows the federal funds rate to be pushed far below the long-term bond rate.

• It stabilizes short-term interest rates.

• It eliminates the need for monetary policy.

What is a challenge mentioned regarding the implementation of emergency negative rate policies?

• They are easily accepted by all countries.

• They may become long-term policies instead of temporary measures.

• They require no legislative support.

• They are only applicable in developing economies.