Summers Rejects Negative Rates as Potential Crisis-Fighting Tool

Former U.S. Treasury Secretary Lawrence Summers has jumped into the debate about negative interest rates, signing onto a paper that gives the policy -- adopted in Europe and Japan as an emergency tool during the financial crisis -- a damning review.

Negative central bank rates have not been transmitted to overall deposit rates, and a model suggests that tiptoeing into negative territory in a world with such a disconnect is “at best irrelevant, but could potentially be contractionary due to a negative effect on bank profits,” Summers writes with Brown University’s Gauti Eggertsson and Ella Getz Wold and Norges Bank’s Ragnar Juelsrud.