Frenkel: Negative Rates Not Healthy for Financial System

The transcript discusses the implications of negative and low interest rates on the financial system, emphasizing that while monetary policy has been crucial in averting a deep recession, it should not be the sole tool for economic growth. The need for fiscal and structural policies is highlighted, along with the evolving mandates of central banks to include financial stability. The discussion also touches on the potential risks of zero interest rates, such as creating economic bubbles.

What is the main concern about negative interest rates according to the discussion?

• They stabilize the economy.

• They are not healthy for the financial system.

• They are beneficial for short-term growth.

• They encourage excessive spending.

Why should monetary policy not be the only focus for economic growth?

• It is too expensive to maintain.

• It cannot solve long-term productivity issues.

• It leads to high inflation.

• It is not supported by politicians.

What additional policies are suggested to complement monetary policy?

• Trade policies

• Fiscal and structural policies

• Environmental policies

• Healthcare policies

How have the mandates of central banks changed over time?

• From focusing on economic growth to focusing on technological advancement.

• From focusing on trade balance to focusing on currency exchange rates.

• From focusing on employment to focusing on inflation.

• From focusing on price stability to also focusing on financial stability.

What risk is associated with zero interest rates?

• They reduce government debt.

• They may create economic bubbles.

• They increase employment rates.

• They lead to increased savings.