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Impact of the Negative Interest Rate Policy on Emerging Asian Markets
In the last few years, several central banks have implemented negative interest rate policies to boost the domestic economy. However, such policies may have some unintended consequences for the emerging Asian markets. The analysis provides an assessment of the domestic and global implications of negative interest rate policy and how it differs from that of quantitative easing. It shows that the impact of nirp is heterogeneous, with differential impacts for big Asian economies (India and Indonesia) and small trade-dependent economies (Hong Kong, Philippines, South Korea, Singapore and Thailand). Quantitative easing, on the other hand, has no significant impact on inflation but nominal gdp growth declines in eams. The currency appreciates and exports decline. The impact is much more severe in big emerging economies.
The authors are very grateful to the anonymous referee for the evaluation of the paper and for the constructive criticism.
Post the global financial crisis of 2008, the way the monetary policies were conducted in the advanced economies changed dramatically. These policies have generally been termed as “unconventional” monetary policy (UMP) as opposed to “conventional” monetary policies where the central banks either cut or raise policy rates to influence short-term interest rates. However, the central banks of many of the advanced economies had to look beyond conventional monetary policies after it reached the zero lower bound (ZLB) in order to help their economies come out of deflationary pressures.
The experience so far suggests that the central banks have resorted to two different ways of conducting UMP—quantitative easing (QE) and negative interest rate policy (NIRP). The QE was aimed at suppressing the long-term interest rates by the large-scale purchases of long-term government bonds and mortgage backed securities by central banks. The Federal Reserve (Fed), the Bank of England (BOE), the European Central Bank (ECB) and the Bank of Japan (BOJ) actively engaged in QE in various phases.
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