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Negative Nominal Interest Rates: Three ways to overcome the zero lower bound

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Author Info
Buiter, Willem H

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Abstract

The paper considers three methods for eliminating the zero lower bound on nominal interest rates and thus for restoring symmetry to domain over which the central bank can vary its 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 which can be set to achieve a forward discount (expected depreciation) of the currency vis-a-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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7346.

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Date of creation: Jun 2009
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Handle: RePEc:cpr:ceprdp:7346

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Related research
Keywords: Eisler; Gesell; liquidity trap; Monetary policy; quantitative easing; zero interest rate policy;

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Find related papers by 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 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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This page was last updated on 2009-10-29.

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