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I wrote at the beginning of January that economic conditions this year were set to be as weak as in 2015, which was the worst year since the global financial crisis erupted in 2008 .And yet, in none of the economies attempting the unorthodox experiment of negative interest rates has there been a return to growth and full employment. In these models, the interest rate is the key policy tool, to be dialed up and down to ensure good economic performance. If a positive interest rate doesn't suffice, then a negative interest rate should do the trick.Yet, as real interest rates have fallen, business investment has stagnated.There is a large difference (spread) between the interest rates the banks set and the T-bill rate.A decrease in the real interest rate – that on government bonds – to minus 3 percent or even minus 4 percent will make little or no difference. Negative interest rates hurt banks' balance sheets, with the "wealth effect" on banks overwhelming the small increase in incentives to lend.
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