The impact of the low interest rate policy on private households in the eurozone

Interest rates have been in decline for the last 20 years. However, most of the time, this was a response to changes in the economic environment and the downward trend was more or less justified in fundamental terms. By contrast, the current situation of low interest rates is caused by the post-crisis economic environment and is mainly a result of the ultra-loose monetary policy. Against the backdrop of a weak economy, a fragile banking system and “lowflation”, the current policy stance of the ECB might be justified. Nonetheless, it is not without costs. Low interest rates are a bane for savers but a boon for borrowers. Moreover, monetary policy does not affect all eurozone members equally.

In the following analysis we concentrate on the two items of private households’ balance sheets that are not only the biggest but also the most interest-rate sensitive: bank loans and deposits. In doing so, we can quantify the effects of the ECB’s expansive monetary policy on private households in the eurozone since 2010.

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