The declining economic outlook and increasing political pressure are pushing central banks into more aggressive unconventional monetary policies. Simultaneously, fears are growing that such steps, especially negative interest rates, actually threaten the stability of the financial system. They risk setting off dangerous feedback loops in credit markets and the real economy, where the second and third-order effects are difficult to anticipate or control. As the experience of banks in Japan and Europe has illustrated, the process follows a predictable pattern. Low growth, low inflation, output gaps, unemployment and ... (full story)