THE IMPACT OF NEGATIVE INTEREST RATE POLICY ON CONSUMER INFLATION EXPECTATIONS

Abstract

Negative interest rate policies were implemented by several central banks to put downward pressure on real interest rates and stabilize the excessively low inflation rate resulting from the 2008 global financial crisis. This study contributes to the existing literature on negative interest rate policies by analyzing the effects of negative interest rates on changes in median consumer inflation expectations using data from the EU Consumer Survey focusing on the Eurozone and the Bank of England Inflation Attitudes Survey. This study uses the Difference-in-Differences (DiD) method to analyze the effectiveness of negative interest rate policies in increasing inflation expectations. The results show that the implementation of negative interest rate policies does not have a significant effect on changes in median consumer inflation expectations, as parallel trends between the treatment and control groups persist after the policy is implemented without any significant disruption.