The Effect of Negative Interest Rate Policy on Private Savings: A European Panel Data Study

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Negative interest rate policy (NIRP) was implemented to increase stagnant inflation towards the target level and promote economic growth. This comprised of the decreasing of the interest rate offered on excess reserves of banks at the central bank, below zero percent. While current empirical literature on NIRP, illustrates the effects of NIRP on bank lending. This research examines the relation between NIRP and private savings. This is an important relation as central banks seek to disincentive private saving relative to consumption, in order to stimulate economic growth and inflation. The research question is, “To what extent is there a negative relation between NIRP and private savings?”. To research the relationship between NIRP and private savings this paper employs a panel data analysis for multiple countries which have implemented NIRP. The findings of the empirical models are inconclusive in the determining the relationship between NIRP and private savings. Where the different empirical models indicate both a positive and a negative relationship. The robustness of the empirical findings by this research is problematic due to inflated parameters as the result of serial correlation. This research concludes that there is no evidence for a negative relationship between private saving and NIRP.
Faculteit der Managementwetenschappen