Zero Lower Bound
a.k.a. ZLB, Effective lower bound
The idea that interest rates can't go much below zero, because people would simply hold cash instead.
In plain English
The idea that interest rates can't go much below zero, because people would simply hold cash instead.
The zero lower bound (ZLB) is the floor that limits how far central banks can cut. If banks charged you a big fee to hold deposits, you would withdraw your money and stuff it in a safe. So rates cannot go far below zero without risking that.
Several central banks proved the floor is a bit lower than zero by using negative rates, which is why economists now prefer "effective lower bound". Hitting it forces central banks to use other tools like QE.
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