Nominal Interest Rates: Less Than Zero?

By Daniel L. Thornton

January 1999

Can nominal interest rates be less than zero? Many people would argue not, reasoning that no one would invest $100 today with a promise of receiving only, say, $99 in one year, given the alternative of simply holding the $100 in cash. Yet, rates on short-term Japanese government bills recently were negative, and several foreign-owned banks in Japan have paid negative nominalinterest rates on yen deposits.

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