Risks and the influence of negative interest rates on economic activity: a case study of Sweden, Denmark, and Switzerland

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The purpose of this paper is to analyze the impact of negative interest rates on economic activity in a selected group of countries, in particular Sweden, Denmark, and Switzerland, for the period 2009–2018. The central banks of these countries were among the first to implement negative interest rates to revive the economic growth. Therefore, this study analyzed long- and short-term relationships between interest rates announced by central banks and gross domestic product and blue chip stock indices. Time series analysis was conducted using Engle-Granger cointegration analysis and Granger causality testing to identify long- and short-term relationship. The first step, using the Akaike criteria, was to determine the optimal delay of the entire time interval for the analyzed periods. Time series that seem to be stationary were excluded based on the results of the Dickey-Fuller test. Further testing continued with the Engle-Granger test if the conditions were met. It was designed to identify co-integration relationships that would show correlation between the selected variables. These tests showed that at a significance level of 0.05, there is no co-integration between any time series in the countries analyzed. On the basis of these analyses, it was determined that there were no long-term relationships between interest rates and GDP or stock indices for these countries during the monitored time period. Using Granger causality, the study only confirmed short-term relationship between interest rates and GDP for all examined countries, though not between interest rates and the stock indices.

Acknowledgment 
The paper has been created with the financial support of The Czech Science Foundation GACR 18-05244S – Innovative Approaches to Credit Risk Management.

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    • first difference Table 7. The results of the ADF test – the second difference
    • Table 1. Negative interest rates of selected central banks (December 1, 2019)
    • Table 2. Description of variables used for analysis
    • Table 3. Results of optimal lag via AIC for interest rates and GDP
    • Table 4. Results of optimal lag via AIC for interest rates and blue chip stock indices
    • Table 5. The results of the ADF test
    • Table 6. The results of the ADF test – the first difference
    • Table 7. The results of the ADF test – the second difference
    • Table 8. The results of the Engle-Granger cointegration test
    • Table 9. The results of the Granger causality test for interest rates and GDP
    • Table 10. The results of the Granger causality test for interest rates and blue chip stock indices