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Looking-glass monetary policy

What’s it like when interest rates go negative?

By Paul Wallace  

One rate-setter noted public disquiet about living in “the minus world." Photo: Christoph Hardt/Geisler-Fotopres/DPA/PA Images

Economists used to talk about the “zero bound,” a supposed fundamental limit on lowering interest rates. But over the past few years one central bank after another has passed through the barrier with surprising ease, and set negative rates. The Bank of England, which was swift to adopt unconventional measures such as quantitative easing, has long resisted the policy. More recently, however, it has become more open to the idea and has been preparing the ground in case it might wish to go negative. If the Bank does follow its peers through the looking glass, what can we expect?

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