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Finance and Credit
 

Modern interest rate policy of central banks and a phenomenon of negative interest rates

Vol. 22, Iss. 47, DECEMBER 2016

PDF  Article PDF Version

Received: 12 September 2016

Received in revised form: 17 October 2016

Accepted: 1 December 2016

Available online: 24 December 2016

Subject Heading: MONETARY ACCOMMODATION

JEL Classification: E51, E52, E58

Pages: 2-14

Burlachkov V.K. Moscow State Institute of International Relations (University) of the Ministry of Foreign Affairs (MGIMO University), Moscow, Russian Federation
vkburl@gmail.com

Importance Interest rate policy is the main element of monetary regulation realized by central banks. Deflationary tendencies in the leading countries necessitate a decrease in the interest rates of central banks. In these conditions, a new phenomenon emerged, i.e. negative interest rates on deposits of commercial banks with central banks.
Objectives The objectives of the study are to examine the specifics of modern interest rate policy of leading central banks; define reasons for negative interest rate phenomenon; elaborate methodological framework for increasing the efficiency of interest rate policy in the Russian economy.
Methods The research involves methods of logical and statistical analysis.
Results The paper describes the specifics of interest rate policy of central banks under the evolution of money mechanism in the modern economy; the profile of interest rate regulation using interest rate corridors. Furthermore, it defines the distinguishing features of interest rate formation and their influence on the scope of lending and liquidity formed by central banks; characterizes the influence of interest rates on deflationary trends.
Conclusions The formation of payment systems controlled by central banks significantly increased the importance of reserves of commercial banks with central bank. But when targeting the interest rates on these reserves, central banks have limited possibilities to influence interest rates applied by commercial banks for lending. Therefore, central banks are not capable to effectively stimulate bank lending under cyclic recession and have to use a non-standard method to increase money supply, namely, quantitative easing.

Keywords: interest rate policy, money mechanism, interest rate corridor, deflation, quantitative easing

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