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Overcoming the Zero Bound on Interest Rate Policy

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  • Goodfriend, Marvin

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 Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 32 (2000)
Issue (Month): 4 (November)
Pages: 1007-35

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Handle: RePEc:mcb:jmoncb:v:32:y:2000:i:4:p:1007-35

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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References

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  2. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
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  4. Marvin Goodfriend & Jeffrey M. Lacker, 1999. "Limited commitment and central bank lending," Working Paper 99-02, Federal Reserve Bank of Richmond.
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  8. 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.).
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. 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
  2. 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
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