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Negative nominal interest rates: Three ways to overcome the zero lower bound

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  • Buiter, Willem H.

Abstract

The paper considers three methods for eliminating the zero lower bound on nominal interest rates and thus for restoring symmetry to the domain over which the Central Bank can vary its official policy rate. They are: (1) abolishing currency (which would also be a useful crime-fighting measure); (2) paying negative interest on currency by taxing currency; and (3) decoupling the numéraire from the currency/medium of exchange/means of payment and introducing an exchange rate between the numéraire and the currency; this exchange rate can be set over time to achieve a forward discount (expected depreciation) of the currency vis-à-vis the numéraire when the nominal interest rate in terms of the numéraire is set at a negative level for monetary policy purposes.

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Bibliographic Info

Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 20 (2009)
Issue (Month): 3 (December)
Pages: 213-238

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Handle: RePEc:eee:ecofin:v:20:y:2009:i:3:p:213-238

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Web page: http://www.elsevier.com/locate/inca/620163

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Keywords: Monetary policy Zero interest rate policy Liquidity trap Quantitative easing Gesell Eisler;

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References

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  1. Buiter, Willem H & Sibert, Anne, 2006. "Deflationary Bubbles," CEPR Discussion Papers 5637, C.E.P.R. Discussion Papers.
  2. Hall Robert, 2002. "Controlling the Price Level," The B.E. Journal of Macroeconomics, De Gruyter, vol. 2(1), pages 1-21, July.
  3. Hall, Robert E., 1983. "Optimal fiduciary monetary systems," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 33-50.
  4. Willem H. Buiter & Nikolaos Panigirtzoglou, 2003. "Overcoming the zero bound on nominal interest rates with negative interest on currency: gesell's solution," Economic Journal, Royal Economic Society, vol. 113(490), pages 723-746, October.
  5. Edgar L. Feige & Michael Faulend & Velimir Sonje & Vedran Sosic, 2001. "Currency Substitution, Unoffical Dollarization and Estimates of Foreign Currency Held Abroad: The Case of Croatia," International Finance 0106001, EconWPA.
  6. Willem H. Buiter & Anne C. Sibert, 2007. "Deflationary bubbles," LSE Research Online Documents on Economics 3323, London School of Economics and Political Science, LSE Library.
  7. Goodfriend, Marvin, 2000. "Overcoming the Zero Bound on Interest Rate Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 1007-35, November.
  8. Willem H. Buiter, 2003. "Helicopter Money: Irredeemable Fiat Money and the Liquidity Trap," NBER Working Papers 10163, National Bureau of Economic Research, Inc.
  9. M. Fase, 2005. "On Economics and Religion," De Economist, Springer, vol. 153(1), pages 85-106, December.
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Citations

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Cited by:
  1. Ulrich van Suntum, . "Economic Confidence, Negative Interest Rates, and Liquidity: Towards Keynesianism 2.0," Working Papers 200108, Institute of Spatial and Housing Economics, Munster Universitary.
  2. Bennett T. McCallum, 2011. "Should central banks raise their inflation targets? Some relevant issues," Economic Quarterly, Federal Reserve Bank of Richmond, issue 2Q, pages 111-131.
  3. £ukasz Goczek, 2011. "Federal policy responses to the 2007-2009 credit crunch in the US," Equilibrium, Wydawnictwo Naukowe Uniwersytetu Mikolaja Kopernika, vol. 6, pages 27-42.
  4. Buiter, Willem H., 2009. "The Limits to Fiscal Stimulus," CEPR Discussion Papers 7607, C.E.P.R. Discussion Papers.
  5. Robert E. Hall, 2011. "The Long Slump," American Economic Review, American Economic Association, vol. 101(2), pages 431-69, April.
  6. Dai, Meixing, 2011. "Quantitative and credit easing policies at the zero lower bound on the nominal interest rate," MPRA Paper 28129, University Library of Munich, Germany.
  7. Ulrich van Suntum & Metin Kaptan & Cordelius Ilgmann, . "Reducing the lower bound on market interest rates," Working Papers 200103, Institute of Spatial and Housing Economics, Munster Universitary.
  8. Robert E. Hall, 2011. "Clashing Theories of Unemployment," NBER Working Papers 17179, National Bureau of Economic Research, Inc.

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