Negative Policy Rates, Banking Flows and Exchange Rates

摘要

Setting negative nominal rates is one of the unconventional policies implemented after the Great Recession to overcome the Zero Lower Bound. Using data from the euro area and Denmark, I assess the impact of introducing a negative interest rate on reserves. I find that it did put a depreciation pressure on the currency due to a reversal in banking flows. This effect is not only caused by policy differentials, but also by a distinct impact of going into negative territory from lowering interest rates.