Zero-Bound Interest Rate

Dictionary Says

Definition of 'Zero-Bound Interest Rate'

The lowest percentage of owed principal that a central bank can set. In monetary policy, the use of a 0% nominal interest rate means that the central bank can no longer reduce the interest rate to encourage economic growth. As the interest rate approaches the zero bound, the effectiveness of monetary policy is reduced as a macroeconomic tool. A zero-bound interest rate typically refers to the process where, by gradual steps, the interest rate approaches zero.
Investopedia Says

Investopedia explains 'Zero-Bound Interest Rate'

For much of the 1990s, the interest rate set by the Japanese central bank, the Bank of Japan, hovered near the zero bound. This was done in order to encourage inflation and reduce the threat of deflation, since banks typically increase interest rates to slow growth down. Zero-bound interest rate policies follow periods of major economic pullback.

Sign Up For Term of the Day!

Try Our Stock Simulator!

Test your trading skills!

Related Definitions

  1. Central Bank

    The entity ...
  2. Interest Rate

    The amount ...
  3. Inflation

    The rate at ...
  4. Stagflation

    A condition of ...
  5. Deflation

    A general ...
  6. Monetary Policy

    The actions of a ...
  7. Boom

    A period of time ...
  8. Industry

    A classification ...
  9. Prisoner's Dilemma

    A paradox in ...
  10. Price Risk

    The risk of a ...

Articles Of Interest

  1. The Consumer Price Index: A Friend To Investors

    As a measure of inflation, this index can help you make key financial decisions.
  2. Coping With Inflation Risk

    Inflation is less dramatic than a crash, but it can be more devastating to your portfolio.
  3. Can Keynesian Economics Reduce Boom-Bust Cycles?

    Learn about a British economist's proposed solution to a common economic problem.
  4. Do Deflationary Shocks Help Or Hurt The Economy?

    Find out how deflationary shocks can both benefit and hurt consumers and businesses.
  5. The Upside Of Deflation

    Deflation has continued to pop up throughout economic history - but is that such a bad thing?
  6. Should You Invest Your Entire Portfolio In Stocks?

    It is true that stocks outperform bonds and cash in the long run, but that statistic doesn't tell the whole story.
  7. The Uses And Limits Of Volatility

    Check out how the assumptions of theoretical risk models compare to actual market performance.
  8. Risk Tolerance Only Tells Half The Story

    Just because you're willing to accept a risk, doesn't mean you always should.
  9. 5 Tips For Diversifying Your Portfolio

    A diversified portfolio will protect you in a tough market. Get some solid tips here!
  10. Invest Like A Pro

    By following the strategies of the pros, even a beginner can learn to invest like an expert.

comments powered by Disqus
Recommended
Loading, please wait...
Trading Center