ARC 18/23-089 Project

ARC 18/23-089 Project

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

Acronym: NEMO


Lead promotor: Catherine D’Hondt (LFIN) []


  • Olivier Corneille (IPSY) []
  • Christian Hafner (ISBA) []
  • Leonardo Iania (LFIN) []
  • Frédéric Vrins (LFIN) []

Post-doctoral researchers:

  • Emir Efendic (IPSY) (until November 2019)
  • Dimitra Kyriakopoulo (CORE) (until December 2019)
  • Elizaveta Lukmanova (CORE) (until September 2021)

PhD students:

  • Liana Nersisyan (LFIN[CD2] )
  • Aleksandar Todorovic (LFIN) []
  • Pavel Tretiakov (LFIN) (until September 2020) []
  • Linqi Wang (LFIN) []

Associate researchers:

  • Julio Davila (until April 2020)
  • Rudy De Winne (LFIN) []


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

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



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).


The macro finance axis of the project focuses on two main (interrelated) areas: monetary policy

and term structure of interest rates.



The quantitative finance axis of the project is centered around (i) the impact of negative interest rates (NIR) on risk attitudes and investment strategies and (ii) 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).


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.

[CD1]Si possible, afficher les photos des personnes

[CD2]Je ne trouve pas sa page dans le répertoire UCLouvain