Open access
Date
2023-09-18Type
- Working Paper
ETH Bibliography
yes
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Abstract
Major central banks remunerate reserves at negative rates (NIR). To study the long-run effects of NIR, we focus on the role of reserves as intertemporal stores of value that are used to settle interbank liabilities. We construct a dynamic general equilibrium model with commercial banks holding reserves and funding investments with retail deposits. In the long run, NIR distorts investment decisions, lowers welfare, depresses output, and reduces bank profitability. The type of distortion depends on the transmission of NIR to retail deposits. The availability of cash explains the asymmetric effects of policy-rate changes in negative vs positive territory. Show more
Permanent link
https://doi.org/10.3929/ethz-b-000645038Publication status
publishedExternal links
Journal / series
Finance and Economics Discussion SeriesVolume
Publisher
Board of Governors of the Federal Reserve SystemSubject
Monetary policy; Interest rates; Money market; Negative interest ratesOrganisational unit
03729 - Gersbach, Hans / Gersbach, Hans
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ETH Bibliography
yes
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