Are negative interest rates effective?

This week’s news that the ECB discussed cutting its deposit rate further below zero has revived discussion of the limits to, and effects of, negative interest rates. Their use by several European central banks shows that cutting rates below zero has a similar impact to lowering rates in more normal circumstances. We think policy rates could be cut a little further in many economies, including the euro-zone, but the “lower bound” on rates remains a constraint for which there are no easy solutions.