2
$\begingroup$

I was attempt to describe the ramifications of negative interest rates across benchmarks.

I can foresee the business practice changes amongst holders of government bonds, savings accounts, certificates of deposit and mortgages. My conclusion was a possible stall of lending in those markets, but thats a red herring to my real question. When it comes to corporate debt I wasn't so sure what ramification even lower interest rates would have on the attractiveness of investment grade corporate debt.

Is there anywhere I can read prevailing or new theories about that?

$\endgroup$
-1
$\begingroup$

Decreasing the nominal interest rate to a negative value will cause businesses to have to raise their prices in order to maintain 0 economic profit. This is because wages are "sticky," and cannot change in a general quarterly or annual period. People who live in the country have not been given any higher incentive to spend, but since prices are increased - aggregate demand will decrease. Additionally, in order to survive the cut in demand and rise in prices, firms will look to lay off workers - raising unemployment. Consumption should decrease as a result of a negative interest rate charged by the Central Bank. In what was an attempt to increase GDP - output will decrease. --> Stagflation is likely to occur

$\endgroup$
  • $\begingroup$ the question is about corporate debt, I now realize how unclear that is in my original post $\endgroup$ – CQM Apr 14 '16 at 16:14

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.