Negative Interest Rates Effect Economic Stability

Today's monetary policy is a historic one, where the introduction of negative interest rates has started a new "age" of unconventional monetary policy and some argue that there is a need for further unconventional monetary tools. The purpose of this thesis is to analyze negative interest rates, how they came to be, what long-term eect they have on economic stability and if its possible to get out. We do this by analyzing existing theoretical and empirical research, including a theoretical model based on household consumption, a cost of money function and an illustration of the liquidity trap. Thereby the thesis concludes that the short term positive eects of negative interest rate policy get exhausted in the long-term as the negative eects increase over time, thus creating an environment of excessive borrowing both by consumers and governments that might lead to instability and economic downturn in the long-term. Furthermore, the negative interest rate policy is creating a diculty of getting out of the negative interest rate environment because the consumers and the rms have gotten used to the "cheap money" and might have hard time nancing day to day operations in normal interest rate world