Impact Mechanism And Empirical Evidence Of The Relationship Between Negative Interest Rate And Asset Price

In recent years,the negative interest rates have aroused wide concern.Interest rate is the price of capital,which is closely related to the behavior of the real economy and the financial market.Asset price is a basic question of financial research and a fundamental factor of economic,and it can reflect policy effectiveness.Under the weak economic background,the low rate or negative rate may be easier to push up asset prices,and weaken the stability of financial markets.This feature reviews the experience of economics that have implemented negative policy rates,and focus on studying the negative interest rate ’s relative theoretical foundation,policy tools and policy effect.The transmission of negative policy rate to various types of asset prices and asset price bubbles are illustrated to evaluate the effectiveness of the policy at financial stability perspective.The first section reviews relative theories and draws up the history of negative interest rate and the background of policy implementation.Then,this paper explains the policy tools,policy objectives and negative interest rates of the negative-policy-rate economies.After that,it evaluates the affections that policy brings to the real economy and financial market,and summarizes the effect in the euro area,Japan,Switzerland,Denmark and Sweden.The second section constructs the research framework of the impact of negative interest rates on asset prices,and analyzes theoretical mechanism.Then,it systematically expounds the influence of negative interest rate on five markets.By illustrating the policy effect on asset price volatility,the paper sums up the reasons of the asset price’s fluctuation and constructs the extended Taylor’s rule of adding asset price factors to analyze the impact on asset price volatility,and make use of Bayesian vector autoregressive model(BVAR)to make further discuss.As for the empirical analysis,the third section makes an introduction about the time-varying stochastic volatility structure vector autoregressive model(TVP-SV-VAR),and use euro area and Japan’s data to construct two seven-variable models,which contains two policy objectives,the exchange rate and inflation,as well as the influence of stock,bonds,real estate and commodity prices.The empirical results show that,after the implementation of negative interest rates,the negative interest rates in the euro area and Japan have obvious characteristics of the exchange rate,inflation,and the impulse response of the four types of asset prices varies.In the euro area,the implementation of negative interest rates will help ease the pressure of currency appreciation and deflationary pressures in the short and medium term.The launch of negative interest rates policy may make the stock market and bond market prosperity in the short run,and lower cost of mortgage triggers oscillation of the real estate price,but the policy does not significantly push up commodity prices.For Japan,the negative interest rate policy in the short term cannot hedge the negative impact of other factors and the policy effect is not obvious.It seems that exchange rate and inflation rate still have much pressure.The policy helps to increase efforts to push up bond prices and its negative impact on stock prices weakened,and negative rate drives gold,silver and other hedging properties prices upward,but it may stimulate housing prices by have a negative impact of the consumption.The forth section uses the extended Taylor Rule that contains stock price bubble to analyze relative questions theoretically at first.Second,it establish an error correction model(VEC)model to construct stock market bubble indicator,and use HP filter method to get GDP gap.This section constructs a four-variable TVP-SV-VAR model,and analyzes the time-varying impulse response of negative interest rate and stock price bubbles.The results show that policy makes the price bubble that exists in the euro area’s stock market slow down.The policy effect became relatively strong as time goes by,which is better than previous monetary easing policies.Also,the negative feedback effect of the stock price bubble is stronger,which means under the market mechanism,price bubble may hinder the downward trend of interest rate.