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Negative interest rates: a Keynesian perspective

Authors: Fiona Maclachlan;

Negative interest rates: a Keynesian perspective

Abstract

One of the most surprising recent developments in financial markets has been the emergence of negative yields on long-term debt. This development contradicts the notion of the zero lower bound which, until recently, was taken as a given in monetary policy discussions. In this paper, I look at the phenomenon of negative yields through the lens of Keynes's liquidity-preference theory of interest. I review changes to the financial market environment that have led to a shift in the liquidity of government bonds relative to bank deposits, and with this empirical context in place, I argue Keynes's theory is consistent with the phenomenon of negative bond yields. Finally, I consider Keynes's thought in relation to a negative interest-rate policy (NIRP) and argue that while he would be opposed to a NIRP as a temporary expedient, a mildly negative policy rate fits with his long-run vision for a world with a zero risk-free long-term interest rate.

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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
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