Business and Management Research News

Assistant Professor of Economics, Dr. Maria-Teresa Punzi, recently co-authored “The Transmission of Euro Area Interest Rate Shocks to Asia -- Do Effects Differ When Nominal Interest Rates are Negative?” The article was published in Emerging Markets Finance & Trade. 

We sat down with her to discuss her research more in-depth and to see if she had any tips for students currently working on their thesis projects.  

WVPU: How did this publication come about? How long have you been working on this topic / this project?

MTP: This article was recently published in Emerging Markets Finance and Trade, an empirical journal that covers research in economics, finance, international business, and international relations. This includes studies like ours; it seeks policy implications by comparing the economic and financial circumstances of emerging economies with those of developing or advanced ones. 

I have been working on this project for a very long time. Indeed, my co-authors and I navigated five rounds of revisions. It took more than a year from the submission of the first draft to the publication. 

This research project’s central thesis was initially presented at a prestigious conference in Tokyo in December 2016. The conference, organized by the Asian Development Bank Institute (ADBI), focused on the implications of ultra-low and/or negative interest rates in Asia. At the conference, I met Dr. Pornpinun Chantapacdepong of the Bank of Thailand, who is one of my coauthors. Once back in Vienna, I also joined forces with Austrian colleagues, including both Dr. Martin Feldkircher of the Austrian National Bank and Prof. Florian Huber of the University of Salzburg.

WVPU: Can you tell us a little more about your article? How would you explain your research to someone who doesn’t have a background on this specific topic?

MTP: The European Central Bank (ECB), the Bank of Japan (BOJ), and several smaller European monetary authorities (e.g., Denmark, Switzerland and Sweden’s respective authorities) have set negative key interest rates. The standard policy would be to set key interest rates at either zero or in positive territory. The ECB was the first major central bank to adopt a so-called negative interest rate policy (NIRP) by lowering its facility deposit rate to −0.1% in June 2014. A further cut in 2016 brought the deposit rate down to −0.4%. Other major central banks, such as the BOJ, have followed by also setting negative key interest rates. 

This paper analyses the economic and financial consequences of the ECB’s new monetary policy on the other side of the world. How does the ECB’s establishment of a negative rate affect GDP, inflation, interest rates, and other variables in Asian countries? Is there any effect at all? Do they experience any consequences from this European policy?

It’s hard to explain our results in just a few sentences, but I’ll try. We found that the negative interest rate policy implemented in Europe mainly affected the long-term yield in many Asian countries. This effect suggests that the international portfolio balancing channel was the main transmission channel, as investors had been moving capital as a result of the yield differentials.

WVPU: Which resources do you use to locate reliable data for your research?

MTP: We have used monthly statistics from central banks. Dr. Pornpinun Chantapacdepong, working at the Bank of Thailand, was able to collect the data from Thailand and many other Asian countries. Her data collection contribution was very important.

WVPU: What recommendations do you have for a student who is interested in studying this topic?

MTP: It is important to collect data on a monthly basis because NIRP has only been applied since 2014. It would also be very interesting to study the impact of these negative interest rate policies at the banking level in addition to the macro-financial level.