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- Title
NEGATIVE INTEREST RATES AND A POSSIBLE RIFT IN INTEREST RATE PARITY AND ARBITRAGE.
- Authors
Ardoin, Eugenie; Rodriguez, Arturo
- Abstract
Recently, many developed countries' have experienced low rates of economic growth and stagnation. Central bankers around the globe have been trying to determine the best course of action to allow these economies to regain healthy rates of growth. Under monetary policy, central bankers are able to influence interest rates both directly, through the rates they charge banks, and indirectly through changes in the money supply. With traditional monetary policy tools failing to correct the economic deflation in several countries, the central banks have taken unprecedented steps. Through the use of monetary policy tools, central banks have taken interest rates to very low levels, or zero in some instances; and in the Euro zone, Japan, and Switzerland, to negative rates. The decision to bring rates into negative territory is related to the desire to stimulate the economy by making it costly for banks to hold excess cash reserves (Coppola, 2013), encouraging them to invest those reserves in business and consumer loans. This paper analyzes interest rate parity using various currency and interest rates for several countries employing negative rates. If interest rate parity does not hold, we should see opportunities for arbitrage in currencies that would correct the rift in parity.
- Publication
International Journal of Business, Accounting & Finance, 2017, Vol 11, Issue 2, p48
- ISSN
1936-699X
- Publication type
Academic Journal