Negative, Zero or Close-to-Zero Interest Rates and Their Intended and Unintended Economic Consequences

The fundamental policy response to the 2008 Global Financial Crisis (GFC) was an immense increase in the supply of money, which has come to be known as Quantitative Easing (QE), by governments all over the world. Company and even country bailouts occurred in the immediate aftermath of the 2008 crisis. Ever since 2008, money supply around the world has been climbing exponentially, breaking historical records; in addition, nominal interest rates have been unusually and persistently either negative or almost zero or hovering just above zero in most developed countries. While financial markets and economic activity have picked up pace and exhibit signs of health, there is anecdotal evidence that both depend crucially on the repeatedly reinforced perception (through previous governmental action) that governments stand ready to support strongly and fully economies and markets. There exist sceptics, including those with significant influence and visibility, who argue that risks are gathering on the horizon for yet another economic and financial crash, which could have a major impact on the capitalist system as we know it. We recognize that since the 1980s global liquidity has been surging as an outcome of policies of economic and political liberalisation, jumps in international trade and financial flows, and continuous improvements and enhancements in productivity or technological advancements, among other examples, and that profit-seeking in an environment of ballooning global liquidity has contributed to a wave of several financial crises around the world since the 1990s. Like the response to the 2008 crisis, the QE was, in considerably smaller doses, governments’ main policy response. That is, there was already a substantial amount of rather unproductive liquidity, floating and percolating around the world well before the 2008 crisis showed its might and punch. While these long-standing economic and policy forces that have advanced the global liquidity are separate—in reason and/or cause—from the QE implementations since 2008, they might have had their say on the 2008 crisis as well. The QE, the negative or zero or close-to-zero interest rates, and governments’ repeated actions to support the markets are brand-new experiences for the world markets and economies. These measure can cure some problems but also lead to unintended consequences through distorted incentives. They are also likely to have an impact on the welfares of future generations. Furthermore, excess capital’s pre-2008 ballooning has gone several notches since 2008. Interesting questions and their answers are awaiting exploration. These are unusual, untested and interesting times for humanity with virtually no historical evidence or theoretical contributions from the knowledge producers in the fields of finance and economics. Twelve years after QE was first initiated, we are inviting research contributions that bring together new thinking on all dimensions of excessive liquidity arising from the several explicit and implicit rounds of QE actions, and negative or zero or close-to-zero interest rates. Given the global relevance of this phenomenon, we welcome papers from all markets and economies, including theoretical and empirical contributions. We welcome a range of perspectives provided they relate to financial and economic problems originating from the dynamics of the persisting negative or zero or close-to-zero interest rates.