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

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  • Willem Buiter

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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 Financial Markets Group in its series FMG Discussion Papers with number dp636.

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Date of creation: Jul 2009
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Handle: RePEc:fmg:fmgdps:dp636

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  1. 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, Royal Economic Society, vol. 113(490), pages 723-746, October.
  2. Marvin Goodfriend, 2000. "Overcoming the zero bound on interest rate policy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 1007-1057.
  3. Willem H. Buiter, 2003. "Helicopter Money: Irredeemable Fiat Money and the Liquidity Trap," NBER Working Papers 10163, National Bureau of Economic Research, Inc.
  4. Willem H. Buiter & Anne C. Sibert, 2004. "Deflationary Bubbles," NBER Working Papers 10642, National Bureau of Economic Research, Inc.
  5. W. Bolt, 2003. "Retail Payments in the Netherlands: some Facts and Some Theory," WO Research Memoranda (discontinued) 722, Netherlands Central Bank, Research Department.
  6. M. Fase, 2005. "On Economics and Religion," De Economist, Springer, vol. 153(1), pages 85-106, December.
  7. 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, EconWPA 0106001, EconWPA.
  8. Hall Robert, 2002. "Controlling the Price Level," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 2(1), pages 1-21, July.
  9. Mitsuhiro Fukao, 2005. "The Effects of 'Gesell' (Currency) Taxes in Promoting Japan's Economic Recovery," Hi-Stat Discussion Paper Series, Institute of Economic Research, Hitotsubashi University d05-94, Institute of Economic Research, Hitotsubashi University.
  10. Hall, Robert E., 1983. "Optimal fiduciary monetary systems," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 33-50.
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  1. Doit-on abandonner les billets de banque ?
    by ? in D'un champ l'autre on 2014-05-23 11:06:00
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Cited by:
  1. Robert E. Hall, 2011. "The Long Slump," NBER Working Papers 16741, National Bureau of Economic Research, Inc.
  2. £ukasz Goczek, 2011. "Federal policy responses to the 2007-2009 credit crunch in the US," Equilibrium, Uniwersytet Mikolaja Kopernika, vol. 6, pages 27-42.
  3. 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.
  4. 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.
  5. 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.
  6. Kenneth S. Rogoff, 2014. "Costs and Benefits to Phasing Out Paper Currency," NBER Working Papers 20126, National Bureau of Economic Research, Inc.
  7. Buiter, Willem H., 2009. "The Limits to Fiscal Stimulus," CEPR Discussion Papers 7607, C.E.P.R. Discussion Papers.
  8. van Suntum, Ulrich, 2009. "Economic confidence, negative interest rates, and liquidity: Towards Keynesianism 2.0," CAWM Discussion Papers 24, Center of Applied Economic Research Münster (CAWM), University of Münster.
  9. Bennett T. McCallum, 2011. "Should Central Banks Raise their Inflation Targets? Some Relevant Issues," NBER Working Papers 17005, National Bureau of Economic Research, Inc.
  10. Robert E. Hall, 2011. "Clashing Theories of Unemployment," NBER Working Papers 17179, National Bureau of Economic Research, Inc.
  11. Ilgmann, Cordelius, 2011. "Silvio Gesell: 'a strange, unduly neglected' monetary theorist," CAWM Discussion Papers 23, Center of Applied Economic Research Münster (CAWM), University of Münster.

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