The very expansive and unconventional monetary policy of the ECB reduced the tensions of the Euro debt crisis at the price of persistently very low interest rates. While the ECB was right to act at the peak of the crisis, the risks of the low-interest rate environment become increasingly obvious. Private savings suffer from very low yields, which is particularly detrimental for long-term retirement savings. Moreover, financial stability risks could arise, as ultra-low interest rates can cause a search for yield among investors. Banks and life insurance companies are exposed to reduced interest profits respectively lower yields. While life insurance companies can cope with a shorter period of low interest rates, a longer period, however, poses challenges, as contracts with guaranteed interest rates have to be served.

Therefore, it is a positive sign that the economic conditions for an interest rate turnaround have improved significantly since 2012 and are expected to improve further. Economic activity is clearly on an upward trend which is expected to continue despite current uncertainties. Significant structural reforms have been implemented in most stressed Euro countries which will most likely increase growth potentials soon (as already appears to be the case in Spain). Due to a stronger economy fears of deflation should only be a temporary phenomenon. Stress indicators and fundamentals in the banking sector have also improved on the back of (late but eventually decisive) policy measures and will continue to do so in the course of the ECB’s pending stress test. Public and private indebtedness should be manageable in an environment where a sustainable moderate economic growth and more normal inflation are present. These are the conditions which characterize the baseline scenario assumed here.

Despite remaining uncertainties, e.g. geopolitical risks or a lack of reform implementation, in our baseline scenario an interest rate turnaround appears possible in the second half of 2015. As an exit from the long low interest rate period poses significant challenges to financial markets, the ECB should institute a smooth interest rate turnaround and communicate its preconditions very actively. More concretely, the ECB should raise interest rates initially only in very small monthly steps to allow financial actors to better adapt to the changing interest rate environment.

IW policy paper

Jürgen Matthes: The low interest rate environment – Causes, effects and a way out

IconDownload | PDF


26. September 2016

Geldpolitik Draghische EntscheidungenArrow

Seit 2008 zieht die Europäische Zentralbank (EZB) ein geldpolitisches Instrument nach dem anderen aus dem Hut, um die Märkte zu stabilisieren, die Wirtschaft zu beleben oder – wie derzeit – die Inflation anzukurbeln. Weil bislang nicht alle erhofften Wirkungen eingetreten sind, soll EZB-Chef Mario Draghi nach dem Willen einiger Ökonomen noch tiefer in die geldpolitische Trickkiste greifen. Doch das ist nicht notwendig. Denn tatsächlich wirkt die Niedrigzinspolitik – auf dem Arbeitsmarkt. mehr auf

Zinsentscheidung der Federal Reserve
IW-Nachricht, 22. September 2016

Zinsentscheidung der Federal Reserve Normalisierung der Geldpolitik immer unwahrscheinlicher Arrow

Die US-amerikanische Federal Reserve Bank (Fed) hat die Erhöhung des Leitzinses erneut aufgeschoben. Im vorigen Jahr hatte die Fed ihre Niedrigzinspolitik zwar offiziell beendet. Doch trotz guter Arbeitsmarktdaten gab es seitdem keine weiteren Zinsschritte. Vom „normalen“ Leitzins, der in den USA bei 4 Prozent läge, ist die Zentralbank also weit entfernt – und müsste im Abschwung wie Europa auf negative Zinsen setzen. mehr

The Contribution of Supply and Demand Factors to Low Inflation
IW-Kurzbericht, 20. September 2016

Michael Hüther / Markus Demary IW Monetary Outlook: The Contribution of Supply and Demand Factors to Low InflationArrow

Eurozone inflation underperforms since the beginning of 2013 and monetary policy struggles to stabilize it since then. The items of the aggregate inflation rate indicate that low inflation is due to both supply and demand factors and weak demand is caused by indebtness and unemployment. Additional monetary policy measures are not required in the current situation because monetary policy has long lags when economies are indebted and it already helped to reduce cyclical unemployment. mehr