NEMO ARC Project

Negative and ultra-low interest rates: behavioral and quantitative modelling

Acronym: NEMO


 Lead promoter

                                                                                Catherine D’Hondt (LFIN) 



Post-doctoral researchers:

Emir Efendic (IPSY) (until November 2019)

Dimitra Kyriakopoulo (CORE) (until December 2019)

Elizaveta Lukmanova (CORE) (until September 2021) 

Aysegul Kanay (IPSY)

PhD students:

Liana Nersisyan (LFIN)  (until October 2022)

Aleksandar Todorovic (LFIN) (until September 2021)

Pavel Tretiakov (LFIN) (until September 2020)

Linqi Wang (LFIN) (until September 2022)

Aiste Petkeviciute (LFIN) (until September 2023)

Associate researchers:

Julio Davila (until April 2020)

Rudy De Winne (LFIN)

The Project

Interest rates are a cornerstone of economics and finance. They are at the foundation of asset pricing and monetary policy, and more generally of all intertemporal choices made by market participants and institutions every day, with huge consequences for the economic activity and wellbeing of our societies. Until recently, it was assumed (mostly implicitly) that interest rates could only possibly be positive. Notwithstanding, in the wake of the 2008 global financial crisis, major central banks of developed countries have been brought to conduct rates policies that turned them negative. The consequences of such a paradigm shift are both potentially huge and not well understood yet. This research project aims at shedding light on these consequences, both from an academic and a policy viewpoint, following three intertwined research lines that bring together a multidisciplinary team of researchers working on Behavioral Finance, Macro Finance, and Quantitative Finance.

Figure 1: The path to negative interest rates

Path to negative interest

The research project turns around the changes —both for modelling and policy-making— brought in by the possibility of negative interest rates. More specifically, we investigate:

  1. how economic agents change their behaviors when interest rates are negative, and what the consequences of these changes are.
  2. what are the implications of negative interest rates for the current models in economics and finance, and what changes are needed consequently.

The project addresses these questions from the three different viewpoints of its behavioral finance, macro finance, and quantitative financial modelling dimensions. These are articulated in three research axes.

Figure 2: NEMO’s research fields and overlaps

Nemo'sResearch Fields and Overlaps



  • Aleksandar Todorovic

Essays on individual reactions to ultra-low and negative interest rates

Thesis advisor: Prof. Catherine D'Hondt 

  • Linqi Wang

Essays on Financial Econometrics and Quantitative Finance

Thesis advisors: Prof. Christian Hafner & Prof. Frédéric Vrins



The behavioral axis of the project addresses questions regarding the consequences of negative interest rates (NIR) at the individual and contextual levels, respectively. 


Efendic, Emir; Corneille, Olivier; D'Hondt, Catherine; De Winne, Rudy. How risk-prone are people when facing a sure loss? Negative interest rates as a convenient conceptual framework. In: Psychonomic Bulletin & Review, (2021). doi:10.3758/s13423-021-01921-0 (Accepté/Sous presse)

Corneille, Olivier; D'Hondt, Catherine; De Winne, Rudy; Efendic, Emir; Todorovic, Aleksandar. What leads people to tolerate negative interest rates on their savings. In: Journal of Behavioral and Experimental Economics, Vol. 93, p. 101714 (2021). doi:10.1016/j.socec.2021.101714 (Accepté/Sous presse).

D'Hondt, Catherine; De Winne, Rudy; Todorovic, Aleksandar. Target return as efficient driver of risk-taking. In: Review of Behavioral Finance, (2023). doi:10.1108/RBF-09-2022-0216 (Accepté/Sous presse).


The macro finance axis of the project focuses on two main (interrelated) areas: monetary policy and term structure of interest rates.


F. Allard, L. Iania, K. Smedts (2020) “Stock-bond return correlations: Moving away from “one-frequency-fits-all”, International Review of Financial Analysis 71, 101557.  

B. De Backer, H. Dewachter, L. Iania  (2021) “Macrofinancial information on the post-COVID-19 economic recovery: Will it be V, U or L-shaped?” Finance Research Letters 43.

L. Iania, M. Lyrio, R. Moura (2021) “Bond Risk Premia in Emerging Markets: evidence from Brazil and Uruguay” Applied Economics, Volume 53, 2021 - Issue 58.

Exploring Dependence Relationships between Bitcoin and Commodity Returns: An Assessment Using the Gerber Cross-Correlation, by KK Lawuobahsumo, B Algieri, L Iania, A Leccadito, Commodities 1 (1), 34-49, 2022


The quantitative finance axis of the project is centered around:

  1. the impact of negative interest rates (NIR) on risk attitudes and investment strategies and
  2. the non-linearities introduced by NIR in asset pricing.


Bocart, F., Ghysels, E. and Hafner, C.M. (2020). “Monthly art market returns”, Journal of Risk and Financial Management, 13 (5), 100.

Hafner, C.M. (2020). “Testing for bubbles in cryptocurrencies with time-varying volatility”, Journal of Financial Econometrics, 18, 233–249.

Hafner, C.M., Linton, O. and Tang, H. (2020). “Estimation of a Multiplicative Correlation Structure in the Large Dimensional Case”, Journal of Econometrics, Vol. 217, no.2, p. 431-470.

Hafner, C.M. (2020). “The spread of the COVID-19 pandemic in time and space”, International Journal of Environmental Research and Public Health, 17 (11), 3827.

Hafner, Christian; Herwartz, Helmut; Maxand, Simone. Identification of structural multivariate GARCH models. In: Journal of Econometrics, (2020). doi:10.1016/j.jeconom.2020.07.019 (Accepté/Sous presse).

Mbaye, Cheikh; Vrins, Frédéric. Affine term structure models: a time-change approach with perfect fit to market curves. In: Mathematical Finance, (2022). doi:10.1111/mafi.12342 (Accepté/Sous presse).

Lassance, Nathan; Vrins, Frédéric. Portfolio selection with parsimonious higher comoments estimation. In: Journal of Banking & Finance, Vol. 126, no. 9, p. 106-115 (2021). doi:10.1016/j.jbankfin.2021.106115.

Roccazzella, Francesco; Gambetti, Paolo; Vrins, Frédéric. Optimal and robust combination of forecasts via constrained optimization and shrinkage. In: International Journal of Forecasting, (2021). doi:10.1016/j.ijforecast.2021.04.002 (Accepté/Sous presse).

Hafner, C.M., El Mehdi, R. (2021), “Panel stochastic frontier analysis with dependent error terms”, International Econometric Review - 

Hafner, C.M., Herwartz, H. (2021), “Dynamic score driven independent component analysis”, Journal of Business & Economic Statistics 

Hafner, C.M., Wang, L. (2021), “A dynamic conditional score model for the log correlation Matrix”, Journal of Econometrics 

Lassance, N. and Vrins, F. (2021). “Minimum Rényi entropy portfolios”. Annals of Operations Research 299:23-46.  

Mbaye, C., Sagna, A. and Vrins, F. (2021). “Computation of conditional survival probabilities under partial information via fast quantization”. Resubmitted to Journal of Computational Finance (minor revision). 

Hafner, Christian M. ; Wang, Linqi. Dynamic portfolio selection with sector-specific regularization.  In: Econometrics and Statistics, 2022 - (in press)

Kyriakopoulou, D. and Hafner, C.M., Reconciling negative return skewness with positive time-varying risk premia, Econometric Reviews, in press.

Bocart, F., Hafner, C.M., Y. Kasperskaya and M. Sagarra , Investing in superheroes? Comic art as a new alternative investment, Journal of Alternative Investments, in press

Hafner, C.M. and Majeri, S., Analysis of cryptocurrency connectedness based on network to transaction volume ratios, Digital Finance, in press

Hafner, C.M. and Herwartz, H., Asymmetric Volatility Impulse Response Functions, Economics Letters, in press


Vrins, Frédéric; Wang, Linqi. Asymmetric short-rate model without lower bound. 2021. 36 p. LIDAM Discussion Paper LFIN 2021/06.

D'Hondt, Catherine; De Winne, Rudy; Todorovic, Aleksandar. Target Returns and Negative Interest Rates. 2021. 29 p. LIDAM Discussion Paper LFIN 2021/11.

Corneille, Olivier; D'Hondt, Catherine; De Winne, Rudy; Efendic, Emir; Todorovic, Aleksandar. What leads people to tolerate negative interest rates on their savings?. 2020. 25 p. LFIN Working Paper 2020/05

Efendic, E., D’Hondt, C., De Winne, R., and Corneille, O. (2019). “Negative interest rates may be more psychologically acceptable than assumed: Implications for savings”, Status : currently on SSRN. LFIN Working paper (2019/6). - submission to journal pending  

Todorovic, A. (2021). “Negative interest rates and status quo bias”

Todorovic, A. (2021). “Negative interest rates and money illusion”

Lukmanova, E. and Davila, J. (2021), “Negative Rates”

Lukmanova, E. and Goncharenko, R. (2021). “Aren't Labor Markets Important for Monetary Policy?”

Lukmanova, E. and Rabitsch, K. (2021). “New Evidence on Monetary Transmission: Interest Rate versus Inflation Target Shocks”

Lukmanova, E. and Rabitsch, K. (2021). “Re-assessing International Effects of US Monetary Policy Shocks”

Lukmanova, E. and Wouters, R. (2021) “Inflation Expectations and Term Premium”

Barbagli, M. and Vrins, F. (2021). “Asymptotic Single Risk Factor Models with Stochastic and Correlated Loss Given Default”. under review 

Lassance, N. and Vrins, F. (2021). “Portfolio selection: A target-distribution approach”, under review 

Roccazzella, F., Gambetti, P. and Vrins, F. (2020). “Meta-learning approaches for recovery rate prediction”.

The risk premium in New Keynesian DSGE models: the cost of inflation channel by L Iania, P Tretiakov, R Wouters, Under review

Forecasting total energy’s CO2 emissions by L Iania, B Algieri, A Leccadito LIDAM Discussion Paper LFIN, Under review

Message in a Bottle. Forecasting wine prices. by Bernardina Algieri, Leonardo Iania, Arturo Leccadito, Giulia Meloni, Submission requested by the Journal of Wine Economics


  • Internal Workshop on TEAMS – November 18, 2020
    • “Risk or sure loss? Evidence of sure loss tolerance from three behavioral studies using NIR as a conceptual framework”
    • “Negative interest rate and derivative pricing”
    • “Bank intermediation and negative interest rates”
    • “Zero lower bound or target return - which reference point prevails with negative interest rates?” & “Drivers of risk premia in a structural model with an extension at ZLB”
  • Internal Workshop on TEAMS – February 10, 2022
    •  “Dynamic portfolio selection with sector-specific regularization”
    • “Negative Interest Rates and Money Illusion”
  • Seminar on "Natural rate chimera and bond price reality, by Wolfgang Lemke (ECB ) : - May 05, 2022
  • Society of Financial Econometrics (SoFiE) Financial Econometrics Summer School and workshop 2022 on "Methods for Empirical Asset Pricing with Large Data Sets" by Olivier Scaillet (University of Geneva and SFI) and Fabio Trojani (University of Geneva and SFI), see:;event=68728500;instance=20220620210000 - June 20-23, 2022
  • Seminar on: "The Cyclicality of the Term Structure of Interest Rates", by Antonio Moreno (University of Navarra): - February 16, 2023
  • Society of Financial Econometrics (SoFiE) Financial Econometrics Summer School and workshop 2023 on "Monetary Policy and the Yield Curve" by Glenn Rudebusch (Brooking Institute and NYU) and Michael Bauer (University of Hamburg), see: - June 20-23, 2023