Abstract:
On February 16, 2016, a year and a half after the European Central Bank implemented an unprecedented monetary policy of setting a negative interest rate to stimulate its flagging economy, Japan followed this bold move by setting its own interest rate below zero. By charging negative interest rate on excess funds that commercial banks hold at Bank of Japan, the central bank is hoping that banks will be encouraged to lend instead of hoarding cash, and businesses and households to spend and invest. This research is a narrative approach to examine the pros and cons of negative interest rate policy in Europe and Japan. Additionally, to evaluate whether this policy is effective or not.
