3 ms·

When the value of money falls very deep in a crisis and investors don't want to invest but keep their money liquid, then banks may charge you a fee for allowing

When the value of money falls very deep in a crisis and investors don't want to invest but keep their money liquid, then banks may charge you a fee for allowing you to park your money with them, instead of paying you for loaning it to them. So yes, negative interest can make sense. And maybe you coded a bug into your application instead o a feature, based on wrong assumptions...

nopassrecover 11y ago
Isn't it the case that a central bank primarily lends? In this case aren't they effectively paying banks to borrow? Given 0% interest rates haven't led to desired economic investment and stimulus the approach of the ECB and BOJ seems like wishful thinking that "more of the same" will somehow create different results. While it's clear the stock market benefits from the increased investment, it's not clear that this addresses the lack of aggregate demand in the economy (which as mentioned seems highly influenced by demographics). Then again this is probably more about lowering currency value than stimulating domestic demand.
- riskneural 11y ago
  They are effectively paying banks to lend. The aim is to stimulate investment, and also to drive inflation by making money less valuable.
riskneural 11y ago
Negative risk free rates were theoretically possible, but thought at the time to be stupid. See for example the development of the Cox Ingersoll Ross model, "The standard deviation factor, \sigma \sqrt{r_t}, avoids the possibility of negative interest rates for all positive values of a and b." Many interest rate models had been in the past either criticised for theoeretically allowing negative rates, or specially developed to avoid them. https://en.wikipedia.org/wiki/Cox%E2%80%93Ingersoll%E2%80%93Ross_model https://en.wikipedia.org/wiki/Cox%E2%80%93Ingersoll%E2%80%93...

3 ms·

When the value of money falls very deep in a crisis and investors don't want to invest but keep their money liquid, then banks may charge you a fee for allowing

by ifdefdebug 11y ago

nopassrecover 11y ago
Isn't it the case that a central bank primarily lends? In this case aren't they effectively paying banks to borrow? Given 0% interest rates haven't led to desired economic investment and stimulus the approach of the ECB and BOJ seems like wishful thinking that "more of the same" will somehow create different results. While it's clear the stock market benefits from the increased investment, it's not clear that this addresses the lack of aggregate demand in the economy (which as mentioned seems highly influenced by demographics). Then again this is probably more about lowering currency value than stimulating domestic demand.
- riskneural 11y ago
  They are effectively paying banks to lend. The aim is to stimulate investment, and also to drive inflation by making money less valuable.
riskneural 11y ago
Negative risk free rates were theoretically possible, but thought at the time to be stupid. See for example the development of the Cox Ingersoll Ross model, "The standard deviation factor, \sigma \sqrt{r_t}, avoids the possibility of negative interest rates for all positive values of a and b." Many interest rate models had been in the past either criticised for theoeretically allowing negative rates, or specially developed to avoid them. https://en.wikipedia.org/wiki/Cox%E2%80%93Ingersoll%E2%80%93Ross_model https://en.wikipedia.org/wiki/Cox%E2%80%93Ingersoll%E2%80%93...