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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. Hall Robert, 2002. "Controlling the Price Level," The B.E. Journal of Macroeconomics, De Gruyter, vol. 2(1), pages 1-21, July.
  2. Willem H. Buiter, 2003. "Helicopter Money: Irredeemable Fiat Money and the Liquidity Trap," NBER Working Papers 10163, National Bureau of Economic Research, Inc.
  3. Goodfriend, Marvin, 2000. "Overcoming the Zero Bound on Interest Rate Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 1007-35, November.
  4. M. Fase, 2005. "On Economics and Religion," De Economist, Springer, vol. 153(1), pages 85-106, December.
  5. Willem H. Buiter & Anne C. Sibert, 2004. "Deflationary Bubbles," NBER Working Papers 10642, National Bureau of Economic Research, Inc.
  6. 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 0106001, EconWPA.
  7. Willem H. Buiter, 2003. "Overcoming the zero bound on nominal interest rates with negative interest on currency : Gesell's solution," LSE Research Online Documents on Economics 848, London School of Economics and Political Science, LSE Library.
  8. Mitsuhiro Fukao, 2005. "The Effects of 'Gesell' (Currency) Taxes in Promoting Japan's Economic Recovery," Hi-Stat Discussion Paper Series d05-94, Institute of Economic Research, Hitotsubashi University.
  9. Hall, Robert E., 1983. "Optimal fiduciary monetary systems," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 33-50.
  10. W. Bolt, 2003. "Retail Payments in the Netherlands: some Facts and Some Theory," WO Research Memoranda (discontinued) 722, Netherlands Central Bank, Research Department.
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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. Ulrich van Suntum & Metin Kaptan & Cordelius Ilgmann, 2011. "Reducing the Lower Bound on Market Interest Rates," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 41(2), pages 133-146, September.
  2. Bennett T. McCallum, 2011. "Should central banks raise their inflation targets? Some relevant issues," Economic Quarterly, Federal Reserve Bank of Richmond, issue 2Q, pages 111-131.
  3. Kenneth S. Rogoff, . "Costs and Benefits to Phasing Out Paper Currency," Working Paper 168026, Harvard University OpenScholar.
  4. 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.
  5. 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.
  6. £ukasz Goczek, 2011. "Federal policy responses to the 2007-2009 credit crunch in the US," Equilibrium, Uniwersytet Mikolaja Kopernika, vol. 6, pages 27-42.
  7. Buiter, Willem H., 2009. "The Limits to Fiscal Stimulus," CEPR Discussion Papers 7607, C.E.P.R. Discussion Papers.
  8. Robert E. Hall, 2011. "The Long Slump," American Economic Review, American Economic Association, vol. 101(2), pages 431-69, April.
  9. 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.
  10. Robert E. Hall, 2011. "Clashing Theories of Unemployment," NBER Working Papers 17179, National Bureau of Economic Research, Inc.
  11. Rogoff, Kenneth S., 2014. "Costs and Benefits to Phasing Out Paper Currency," Scholarly Articles 12491029, Harvard University Department of Economics.
  12. 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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