Should bank deposits start being charged at negative interest rates depositors would have incentives to withdraw their money. As holding cash is not costless, people may tolerate slightly negative interest rates. However, as rates become more negative, depositors would withdraw their money, depriving banks of deposits and causing financial instability and reducing banks’ capacity to extend credit to the economy.
Not least with this in mind, I have – as I mentioned earlier – always been quite sceptical about whether the story of globalisation adequately captures the aspects that are most important for explaining the decline in inflation rates. It is monetary policy that, over the medium to long term, pins down trend inflation.