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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.

Suggested Citation

  • Buiter, Willem H., 2009. "Negative nominal interest rates: Three ways to overcome the zero lower bound," The North American Journal of Economics and Finance, Elsevier, vol. 20(3), pages 213-238, December.
    • Handle: RePEc:eee:ecofin:v:20:y:2009:i:3:p:213-238
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    References listed on IDEAS

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    8. Willem Buiter, 2007. "Is Numérairology the Future of Monetary Economics?," Open Economies Review, Springer, vol. 18(2), pages 127-156, April.
    9. Willem H. Buiter, 2007. "Is Numerairology the Future of Monetary Economics? Unbundling numeraire and medium of exchange through a virtual currency and a shadow exchange rate," NBER Working Papers 12839, National Bureau of Economic Research, Inc.
    10. Kenneth Rogoff, 1998. "Blessing or curse? Foreign and underground demand for euro notes," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 13(26), pages 262-303.
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    More about this item

    Keywords

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

    JEL classification:

    • B1 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925
    • B2 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925
    • B3 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G1 - Financial Economics - - General Financial Markets
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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