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This study examines whether a negative interest rate policy (NIRP) which is mainly used in Denmark, Sweden, Switzerland, and Japan can interfere exchange rate, protect exports, and promote economic growth. We apply Tsay’s (1998) multivariate threshold model to examine the impact of exchange rate misalignment on the economic growth rate with the rate of change in exports as the threshold variable. The empirical results show that in Sweden, the investment contributes to economic growth irrespective of any type of regime, and only when exports threshold value exceeds 3.32% does local currency devaluation contribute to economic growth. In Switzerland, Japan, and Denmark, we have the same result with Sweden that investment will benefit economic growth irrespective of any type in its regime. However, currency devaluation does not significantly affect economic growth. Based on these findings, we suggest that if policymakers wish to use the influence of exchange rate misalignment to promote economic growth, currency depreciation is suggested to be sufficient enough to have an effect. Keywords: Negative Interest Rate Policy; Multivariate Threshold; Economic Growth; Exchange Rate Misalignment; Currency Devaluation JEL Classification Number: F00; O11; O40 |
