The Effect of Negative Interest Rate Policy on Investment in the Euro Area (2014-2019)

Abstract

This study investigates the effect of the Negative Interest Rate Policy (NIRP) on investment spending in the Eurozone over the period 2014-2019 using a panel data approach. The literature on this relation is relatively thin which pinpoints the contribution of this study. Both qualitative analysis and quantitative analysis are adopted. On the econometric side, Kao cointegration test and Fully Modified OLS technique are carried out. Both the descriptive and empirical findings indicate that interest rate after adopting the NIRP has a negative effect on the investment level. This finding is consistent with the neoclassical school of thought.