CEPII, Recherche et Expertise sur l'economie mondiale
Negative interest rates and secular stagnation: monetary policy or social preference?

Michel Aglietta
Natacha Valla

Negative interest rates have been introduced by several European central banks, jointly with quantitative easing, in search of further non-conventional instruments. They are due to ward off the twin evils that undermine advanced countries after the great financial crisis: the anemic demand and the threat of deflation. However those evils are beyond the means of monetary policy. They are symptoms of secular stagnation, whereby the return on capital has tumbled and productivity gains have dangerously weakened. Governments in Europe are largely responsible of this dire situation in eschewing their responsibilities for fostering growth. Their obsession for austerity and their competition for internal devaluation via wage compression have hampered the efforts of central banks to avoid deflation. Perverse effects are appearing. Distortions in yields and financial fragilities in bank balance sheets, entailed by so low interest rates, discourage the financing of long-term investments, however required for energy and climate transition. The pervasiveness of those policies shows the hesitation of present societies to commit to a regime change. A collective debate to reconcile individual well-being with social inclusiveness and environmental sustainability is all the more urgent.

 Panorama du CEPII
N°2016-01, février 2016

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