Zero Interest Rate Policy. A controversial policy pursued by central banks in countries whose economies have collapsed, in an effort to reflate the system. Under ZIRP, a country's central bank sets the interest rate to zero or near zero, to make capital purchases more attractive.
The policy is controversial because it is not clear that it achieves the desired objective, and in fact may lead to a so-called liquidity trap, or a self-reinforcing slow deflation of the economy. Japan has lived with ZIRP since its stock and real estate markets crashed in 1990, and their economy has stagnated ever since. The United States is presently and foolishly following the Japan ZIRP model, with a similar outcome all but assured.
The policy is controversial because it is not clear that it achieves the desired objective, and in fact may lead to a so-called liquidity trap, or a self-reinforcing slow deflation of the economy. Japan has lived with ZIRP since its stock and real estate markets crashed in 1990, and their economy has stagnated ever since. The United States is presently and foolishly following the Japan ZIRP model, with a similar outcome all but assured.
by shlimper44 July 8, 2009