Negative Nominal Interest Rates Can Worsen Economic Crises in Liquidity Traps.
Negative nominal interest rates can make things worse in a situation where businesses expect low demand and lower prices. When the central bank lowers rates to try to boost demand, it might not work if prices keep dropping. In this case, negative rates can actually lead to more pessimism and deflation, making the problem worse. Even very low rates can be harmful in this scenario, according to estimates for the U.S. economy.