This Capstone project involved investigating negative interest rate policies across four central banks. During 2014-2016, the European Central Bank, the Swedish Riksbank, the Swiss National Bank, and the Bank of Japan cut their rates below zero. For a long time this was deemed impossible, but all four central banks were successful in bringing short-term interbank rates negative.
Beyond that, a wide universe of asset return rates went negative, showing that monetary transmission can work in negative territory. However, some features of monetary policy do change. For example, the team found that longer dated securities are less responsive to central bank policy rate cuts when these cuts are in negative territory. Further, the team discovered that the money market trading can suffer if market players are not technically equipped to handle negative rates. Whether central banks telegraphed the possibility of negative rates before the actual cut (ECB, SNB, Riksbank) or did not (BoJ) made a big difference in market functioning immediately after the cut below zero.
In general, however, the Capstone team could not conclude if negative rates – not too far below zero – behave in much the same ways as positive rates close to zero.