The explanation behind the surprising finding is primarily psychological, the researchers said in the study, supporting previous research that the number zero has a strong impact on people’s behavior and decision-making in a range of fields.
“Where investors are concerned, moving from a zero-interest rate policy to a negative interest rate policy might even have the opposite effect,” said Dr. Lior David-Pur of BGU’s Economics Department and head of the Government Debt Management Unit in the Finance Ministry.
“Specifically, when interest rates decline from zero to a negative interest rate, the average leverage decreases instead of increases. The results clearly indicate that individuals react strongly to zero interest rates.” The findings are particularly relevant given the economic fallout from the coronavirus pandemic and already low interest rates, said Prof. Mosi Rosenboim of the Guilford Glazer Faculty of Business and Management. The possible implementation of negative monetary policy by central banks, he said, has “divided economists and politicians.”In September 2019, US President Donald Trump called on the Federal Reserve to “get our interest rates down to ZERO, or less" to refinance national debt. He repeated his call on May 12, calling on the USA to accept the "gift" of negative rates.“The counterintuitive effect of negative interest rates on saving accounts implies that savers should pay interest rather than receive it,” said BGU economics researcher Dr. Koresh Galil. “Hence, one can argue that there is no reason for savers to accept negative rates and would prefer to hold cash. However, in practice, the answer to this question is less clear because there are risks associated with holding cash such as losing it or being robbed. This argument is reinforced because worldwide negative interest rates are low, below 1%.”Further studies are necessary, the researchers said, to understand how far below zero interest rates can drop before prompting individuals to hoard cash.As long as other countries are receiving the benefits of Negative Rates, the USA should also accept the “GIFT”. Big numbers!
— Donald J. Trump (@realDonaldTrump) May 12, 2020