Unconventional Interest Rate Policy
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Transcript of Unconventional Interest Rate Policy
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UNCONVENTIONALINTEREST RATES
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Monetary Policy
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GOALS of Monetary Policy
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Stability in
foreign
exchange
market
High employment
Economic growth
Financial markets stabilityInterest rate stability
Price stability
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Stability in
foreign
exchange
market
High employment
Economic growth
Financial markets stabilityInterest rate stability
Price stability
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CONVENTIONALVs
UNCONVENTIONAL
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NEGATIVE INTEREST RATE POLICY
(NIRP)
ZERO INTEREST RATE POLICY
(ZIRP)
RESTRICTIVE INTEREST RATE POLICY
(RIRP)
QUANTITATIVE EASING(QE)
UNCONVENTIONALINTEREST RATE POLICY
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QUANTITATIVE EASING(QE)
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ZERO INTEREST RATE POLICY
(ZIRP)
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Central Bank Maintains a 0% nominal interest rate Conventional Monetary Policy is at its maximum potential
to drive growth under ZIRP ZIRP- Related to Liquidity Trap, Nominal interest rate cannot adjust downward a time when savings exceed investment.
Features of ZIRP
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COUNTRIES (ADOPTED ZIRP)
JAPAN USA
• First used in the 1990s • Monetary policy during the
subsequent 10 years – Lost Decade
• Japanese economy fell into a liquidity trap
• Relative ineffectiveness of zero interest rates- Japan Continues
• 2008 Financial Crisis- Financial strains in the U.S.
• Interest rates dropped to near zero during this period- 2009
• January 2014, after roughly five years of ZIRP and QE-
U.S. economy improved
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Need for ZIRP
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NEGATIVE INTEREST RATE POLICY
(NIRP)
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ADVANTAGESAND
DISADVANTAGES Unconventional Interest Rate Policies
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EFFECTS OF Unconventional Interest
Rate PoliciesON INDIA
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INTEREST RATES
INCREASE DECREASE
INVESTMENT CURRENCY
INVESTMENT CURRENCY
INDIA
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REFERENCES• http://
www.investopedia.com/articles/investing/022415/how-unconventional-monetary-policy-works.asp
• http://www.investopedia.com/terms/n/negative-interest-rate-policy-nirp.asp• http://
www.tcs.com/SiteCollectionDocuments/White-Papers/Zero-Negative-Policy-Rates-Banks-0416-1.pdf
• http://www.bis.org/publ/work570.pdf• http://
www.livemint.com/Opinion/LdP0jc9h7O3swJlXngUI7N/Unconventional-monetary-policy-on-stilts.html
• http://www.forbes.com/sites/patrickwwatson/2016/05/23/three-weird-consequences-of-nirp/#47725b7f279a
• http://www.huffingtonpost.in/entry/from-zirp-to-nirp_b_10706022• http://
www.livemint.com/Opinion/qq697IFT01gMeqTNBP5LGN/ZIRP-NIRP-and-RIRP.html• http://wolfstreet.com/2016/06/29/nirp-negative-interest-rate-absurdity-11-7-trillion-aft
er-brexit/
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THANK YOUPresented BySyril Thomas | Rahul Shah | Sachin Sanghi