People stopped talking about the “zero bound” several months ago, as central banks breezed through 0% to set negative interest rates far below zero. Zero wasn’t a “bound” for anything, it turned out.

But in recent weeks, there has been a shift in the tides among economists. People have slowly come round to the realisation that negative rates don’t have their intended effect. They may in fact do the opposite of what they are supposed to.

The zero bound, in other words, really may be the lowest a central bank can seriously set rates and retain influence over macroeconomic liquidity. If that is the case, basic economics textbooks will have to be rewritten.

Economists used to talk about the “zero bound” as if it were a theoretical scenario that would never happen in real life. Central banks would never set interest rates at zero because it would look so desperate, sending a strong signal to the market that the bank could go no lower and was out of extra liquidity to stimulate the economy.

Today, of course, zero interest actually looks high.

In Sweden, where the Riksbank has a policy rate of -0.5%, zero would be considered a dramatic tightening of the money supply.

The theory behind negative rates is that if depositing banks are charged costs for leaving cash at the central bank, they will prefer to lend it out at cheap rates to investors and consumers. Thus extra money will be flushed into the economy, raising inflation and triggering growth.

But that has not happened.

Growth in Europe — which has five central banks offering negative rates — is sluggish and in decline. Inflation is nowhere to be seen. Deflation is a bigger worry.

What appears to have happened is that banks have treated negative interest charges as an increase in the cost of doing business. In order to protect their profits, they have made loans more expensive, not cheaper, in order to recoup those charges. Bank of England governor Mark Carney told Parliament recently:

In Switzerland, what has happened as interest rates have gone [to -0.75pc] is that mortgage rates have gone up despite the fact that 10-year yields are flat to slightly negative. And they have gone up because banks have tried to square the circle, and they have added on fees and other charges on mortgages.

So it’s not clear that the domestic transmission has been effective.

Bank of America Merrill Lynch produced this chart of those costs. It assumes the ECB lowers its policy rate to -1%:

That’s 20 billion euros banks will lose — and you can bet they will claw it back from their customers, not give it to them in negative interest coupons on loans. (Carney made a related argument at the G20 meeting in Shanghai.)

In Sweden, negative rates have not increased inflation, because the country is importing far stronger deflation from elsewhere and because the inflation it has created has flowed quickly into house prices. Those two factors suggest central bankers may currently misunderstand how inflation works.

And here is Blackrock chief investment officer of global fixed income Rick Rieder:

Moving to extreme and excessive robbing of savings through charging for storage takes money from savers but doesn’t significantly enhance demand among borrowers. In fact, businesses and consumers may have a lower marginal propensity to spend in uncertain economic times.

Reider argues that the step that comes after zero ought to be fiscal stimulus — government spending — not negative monetary stimulus (something that Business Insider has argued here).

This is important: A year or more ago, people thought negative rates would be a dramatic, world-shaking policy event that turned economics on its head. But they haven’t. They just don’t function in any useful way. That’s a new lesson in economics: Zero really is zero, and the boundary is harder to cross than we thought.

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