What leads people to tolerate negative interest rates on their savings under inflation? Evidence from a Quasi-Experiment

Abstract

Abstract This paper investigates the behavior of investors in the face of negative real interest rates through a quasi-experiment with 142 respondents. The study analyzes the impact of changes in the invested volume, time horizon, and interest rates on investment decisions. The findings reveal that investors with a shorter investment time horizon and those who save larger amounts are more likely to tolerate negative real rates. However, the tolerance for negative real rates decreases when investors are provided with information about the effects of inflation. The study found no effects of saving habits and financial literacy on the tolerance for negative real rates. These insights are important for policymakers and financial agents in countries with wide and successive variations in interest rates and inflation, as they can help in defining more effective and sustainable credit and financial inclusion policies.