The use of negative policy rates by the central banks in the euro area, Switzerland, Sweden and Denmark has largely been conducted within the banks' existing operational framework, with the rates so far transmitted to money market rates in much the same way as positive policy rates, according to the Bank for International Settlements (BIS).
So far, zero has not proved to be a binding lower limit for central bank rates, but "there is great uncertainty about the behavior of individuals and institutions if rates were to decline further into negative territory or remain negative for a prolonged period," BIS said.
In a feature in its latest quarterly review, Morten Bech and Aytek Malkhozov of the BIS examine the technical aspects of how four central banks in Europe have implemented negative rates, leaving aside for further examination the issue of how negative rates affect the entire financial system and banks' profitability.
With the motivations behind each of the central banks' decision to use negative rates different, the implementation of the policy has also differed, they said.
In addition to money market rates reflecting modestly negative rates, they also found that negative rates have been transmitted to longer-maturity and higher-risk rates, though any finding is clouded by the fact that monetary policy in Sweden and the euro zone has included bond purchases to push down long-term rates.
In contrast, retail deposit rates have remained insulated from the negative policy rates, partly by design, Bech and Malkhozov wrote.
But raising questions about how the monetary transmission mechanism might be changing, mortgage rates in Switzerland have actually risen in recent months as banks seek to protect profits.
Click to read the BIS March 2016 quarterly review.