Bank, as we study in conventional economics are the intermediaries who transfers funds from savers to entrepreneurs. So what makes this transfer smooth. According to the contemporary practice, policy rates seems to be the most important lever you need to dial up or down to reach full employment.
And now we are in a zone where this dial down has breached the conventional boundary: Zero-Lower-Bound (ZLB). Along with BoJ and couple of others, now ECB also has decided to try the trick. Prof. Stiglitz argues that none of the economy adopting the negative rate policy has reached the full- employment, rather some of the lending rates have increased.
Prof Stiglitz further argues, that big business are sitting on the piles of cash, and 25 bps is not going to prompt them for some big capital investment. In fact investment in plants and equipments has only decreased. It is the SME’s who are not able to get the funds from the banks, so decrease in yield on T-bills do not affect them. Further they anyways do not have access to capital markets. So it is this group and more specifically the mechanism of credit that central banks should be worried about.