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Overcoming the zero bound on interest rate policy

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  • Marvin Goodfriend

Abstract

The paper proposes three options for overcoming the zero bound on interest rate policy: a carry tax on money, open market operations in long bonds, and monetary transfers. A variable carry tax on electronic bank reserves could enable a central bank to target negative nominal interest rates. A carry tax could be imposed on currency to create more leeway to make interest rates negative. Quantitative policy--monetary transfers and open market purchases of long bonds--could stimulate the economy by creating liquidity broadly defined. A central bank needs more fiscal support than usual from the Treasury to pursue quantitative policy at the interest rate floor.

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Bibliographic Info

Article provided by Federal Reserve Bank of Boston in its journal Conference Series ; [Proceedings].

Volume (Year): (2000)
Issue (Month): ()
Pages: 1007-1057

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Handle: RePEc:fip:fedbcp:y:2000:p:1007-1057

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Keywords: Monetary policy ; Interest rates;

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References

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  1. Marvin Goodfriend & Robert G. King, 1998. "The new neoclassical synthesis and the role of monetary policy," Working Paper 98-05, Federal Reserve Bank of Richmond.
  2. Romer, Christina D., 1992. "What Ended the Great Depression?," The Journal of Economic History, Cambridge University Press, vol. 52(04), pages 757-784, December.
  3. Marvin Goodfriend & Jeffrey M. Lacker, 1999. "Limited commitment and central bank lending," Working Paper 99-02, Federal Reserve Bank of Richmond.
  4. McCallum, Bennett T, 2000. "Theoretical Analysis Regarding a Zero Lower Bound on Nominal Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 870-904, November.
  5. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  6. Mccallum, Bennet T., 1988. "Robustness properties of a rule for monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 173-203, January.
  7. Marvin Goodfriend, 2001. "Why we need an "accord" for Federal Reserve credit policy : a note," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 23-32.
  8. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Liquidity Effects and the Monetary Transmission Mechanism," American Economic Review, American Economic Association, vol. 82(2), pages 346-53, May.
  9. Bengt Holmstrom & Jean Tirole, 1998. "Private and Public Supply of Liquidity," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 1-40, February.
  10. David Reifschneider & John C. Williams, 1999. "Three lessons for monetary policy in a low inflation era," Finance and Economics Discussion Series 1999-44, Board of Governors of the Federal Reserve System (U.S.).
  11. Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
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  24. Stephen G. Cecchetti, 1989. "The Case of the Negative Nominal Interest Rates: New Estimates of the Term Structure of Interest Rates During the Great Depression," NBER Working Papers 2472, National Bureau of Economic Research, Inc.
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  27. David E. Lebow, 1993. "Monetary policy at near-zero interest rates," Working Paper Series / Economic Activity Section 136, Board of Governors of the Federal Reserve System (U.S.).
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  29. Stanley Fischer, 1996. "Why are central banks pursuing long-run price stability?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 7-34.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Quartz #9-->Could the UK Be the First Country to Adopt Electronic Money?
    by ? in Confessions of a Supply-Side Liberal on 2013-04-05 08:01:42
  2. Negative interest rates: when are they coming to a central bank near you?
    by Willem Buiter in Willem Buiter's Maverecon on 2009-05-07 01:27:24
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