Since 2008, central banks have repeatedly reduced nomi-
nal policy interest rates, even to zero or negative territory,
in an attempt to stimulate real economic activity. Mean-
while, bond yields have also fallen towards zero or
beyond, at least partly influenced by central bank action.
In May 2020, the UK government joined many European
governments and Japan as it sold its first government
bond with a negative yield. More recently, there are
worries that rate rises may dampen economic growth.
While such low or negative interest rates appear to have
contributed to asset price bubbles, the impact on eco-
nomic growth remains unclear.
The role of interest rates in the economy has long been
considered self-evident (NAME_1, 2003). Bernanke and
NAME_2 (1992) argued that the short-term nominal interest
rate is the best indicator of monetary policy. This was
supported by NAME_3 (1993) for the US. As NAME_4 (2000)
summed it up: “a central banker moves interest rates”
(p. 43), whereby lower rates are thought to boost economic
activity and/or inflation, while the reverse is thought to
hold for raising rates. This interest rate thesis has been
well established since the early 1980s, as illustrated by
NAME_5 (1985) who, among similar voices, warned that
US growth would slow due to rising interest rates, while a
continuation of economic growth required lower interest
rates. The interest rate thesis is also deployed in dynamic
stochastic equilibrium models, such as NAME_6's (2009) or
dynamic panel studies on the link between financial devel-
opment and growth, which propose an inverse correlation
between interest rates and growth and causation from
rates to growth (e.g. NAME_7 & NAME_8, 2018).
Even quantitative monetary policy since September
2008 has mainly been evaluated by researchers as to its
effectiveness in lowering interest rates, while taking for
granted that such interest rate reductions would be posi-
tive for the economy (see, for instance, Eggertsson &
NAME_1, 2003; Okina & NAME_9, 2004; NAME_10
et NAME_11., 2011; NAME_12 & NAME_13, 2012; NAME_14 NAME_11., 2012;
NAME_15 & NAME_16, 2019; Guo et NAME_11., 2020).
However, the success of the longstanding policy of
lowering rates in stimulating the economy is in dispute:
Federal Reserve economists raised doubts about the
wisdom of extremely low interest rates (Kliesen, 2010).
NAME_17 et NAME_11. (2017) found that negative rates may affect
banks negatively, which in turn could harm the econ-
omy. NAME_18 warned in 2019 that
“reducing interest rates may not be merely
insufficient Write your response with at least 600 words.
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