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Negative Nominal Interest Rates: History and Current Proposals

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  • Cordelius Ilgmann, Martin Menner

Abstract

Given the renewed interest in negative interest rates as a means for overcoming the zero bound on nominal interest rates, this article reviews the history of negative nominal interest rates and gives a brief survey over the current proposals that received popular attention in the wake of the financial crisis of 2007/08. It is demonstrated that ‘taxing money’ proposals have a long intellectual history and that instead of being the conjecture of a monetary crank, they are a serious policy proposal. In a second step the article points out that, besides the more popular debate on a Gesell tax as a means to remove the zero bound on nominal interest rates, there is a class of neoclassical search-models that advocates a negative tax on money as efficiency enhancing. This strand of the literature has so far been largely ignored by the policy debate on negative interest rates.

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Paper provided by Institute of Spatial and Housing Economics, Munster Universitary in its series Working Papers with number 201143.

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Handle: RePEc:muc:wpaper:201143

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Keywords: negative interest rates; history of economic thought; Silvio Gesell; zero bound; search-theoretical models; monetary policy;

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  1. Cordelius Ilgmann, . "Silvio Gesell: 'a strange, unduly neglected prphet'? A reappraisal of a forgotten pioneer of monetary theory," Working Papers 200923, Institute of Spatial and Housing Economics, Munster Universitary.
  2. Guillaume Rocheteau & Randall Wright, 2005. "Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium," Econometrica, Econometric Society, vol. 73(1), pages 175-202, 01.
  3. Cogan, John F. & Cwik, Tobias & Taylor, John B. & Wieland, Volker, 2009. "New Keynesian versus old Keynesian government spending multipliers," Working Paper Series 1090, European Central Bank.
  4. Huberto M. Ennis, 2007. "Avoiding the Inflation Tax," 2007 Meeting Papers 493, Society for Economic Dynamics.
  5. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December.
  6. George Argitis, 2008. "Inflation targeting and Keynes's political economy," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 31(2), pages 249-270, December.
  7. Jess Benhabib & Stephanie Schmitt-Grohe & Martin Uribe, 2000. "Avoiding Liquidity Traps," Departmental Working Papers 199925, Rutgers University, Department of Economics.
  8. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  9. Shouyong Shi, 2006. "Viewpoint: A microfoundation of monetary economics," Canadian Journal of Economics, Canadian Economics Association, vol. 39(3), pages 643-688, August.
  10. Lucy Qian Liu & Liang Wang & Randall Wright, 2009. "“On the ‘Hot Potato Effect’ of Inflation: Intensive versus Extensive Margins”," PIER Working Paper Archive 09-040, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  11. Peter Rupert & Martin Schindler & Andrei Shevchenko & Randall Wright, 2000. "The search-theoretic approach to monetary economics: a primer," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 10-28.
  12. 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.
  13. Li, Victor E., 1994. "Inventory accumulation in a search-based monetary economy," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 511-536, December.
  14. Ricardo Lagos & Randall Wright, 2004. "A unified framework for monetary theory and policy analysis," Staff Report 346, Federal Reserve Bank of Minneapolis.
  15. Jung, Taehun & Teranishi, Yuki & Watanabe, Tsutomu, 2005. "Optimal Monetary Policy at the Zero-Interest-Rate Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 813-35, October.
  16. George Evans & Eran Guse & Seppo Honkapohja, 2007. "Liquidity Traps, Learning and Stagnation," Kiel Working Papers 1341, Kiel Institute for the World Economy.
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  18. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
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  20. Martin Menner, 2011. ""Gesell Tax" and Efficiency of Monetary Exchange," Working Papers. Serie AD 2011-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  21. Martin Menner, 2005. "A Search-Theoretic Monetary Business Cycle Model With Capital Formation," Economics Working Papers we056634, Universidad Carlos III, Departamento de Economía.
  22. Willem H Buiter & Nikolaos Panigirtzoglou, 2000. "Liquidity traps: how to avoid them and how to escape them," Bank of England working papers 111, Bank of England.
  23. Shi, Shouyong, 1999. "Search, inflation and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 44(1), pages 81-103, August.
  24. Aruoba, S. Boragan & Waller, Christopher J. & Wright, Randall, 2011. "Money and capital," Journal of Monetary Economics, Elsevier, vol. 58(2), pages 98-116, March.
  25. Shouyong Shi, 1997. "A Divisible Search Model of Fiat Money," Econometrica, Econometric Society, vol. 65(1), pages 75-102, January.
  26. Li, Victor E, 1995. "The Optimal Taxation of Fiat Money in Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 927-42, November.
  27. Yates, Tony, 2002. "Monetary policy and the zero bound to interest rates: a review," Working Paper Series 0190, European Central Bank.
  28. Mitsuhiro Fukao, 2005. "The effects of ‘Gesell’ (Currency) taxes in promoting Japan's economic recovery," International Economics and Economic Policy, Springer, vol. 2(2), pages 173-188, November.
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  30. 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.
  31. Jérôme Blanc, 2002. "Silvio Gesell, socialiste proudhonien et réformateur monétaire," Post-Print halshs-00168528, HAL.
  32. Miguel Molico, 2006. "The Distribution Of Money And Prices In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 701-722, 08.
  33. Xavier Cuadras-Morató, 1997. "Can ice cream be money?: Perishable medium of exchange," Journal of Economics, Springer, vol. 66(2), pages 103-125, June.
  34. William Darity, Jr., 1995. "Keynes' Political Philosophy: The Gesell Connection," Eastern Economic Journal, Eastern Economic Association, vol. 21(1), pages 27-41, Winter.
  35. Garvy, George, 1975. "Keynes and the Economic Activists of Pre-Hitler Germany," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 391-405, April.
  36. Miguel Molico & Yahong Zhang, 2006. "Monetary Policy and the Distribution of Money and Capital," Computing in Economics and Finance 2006 136, Society for Computational Economics.
  37. Shi Shouyong, 1997. "Search for a Monetary Propagation Mechanism," Working Papers 966, Queen's University, Department of Economics.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The history of negative nominal interest rates
    by Economic Logician in Economic Logic on 2011-12-19 15:12:00
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Cited by:
  1. Ansgar Belke & Jens Klose, 2012. "Modifying Taylor Reaction Functions in Presence of the Zero-Lower-Bound: Evidence for the ECB and the Fed," Discussion Papers of DIW Berlin 1218, DIW Berlin, German Institute for Economic Research.
  2. Degens, Philipp, 2013. "Alternative Geldkonzepte - ein Literaturbericht," MPIfG Discussion Paper 13/1, Max Planck Institute for the Study of Societies.
  3. Belke, Ansgar & Klose, Jens, 2013. "Modifying Taylor reaction functions in the presence of the zero‐lower‐bound — Evidence for the ECB and the Fed," Economic Modelling, Elsevier, vol. 35(C), pages 515-527.
  4. 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.
  5. Martin Menner, 2011. ""Gesell Tax" and Efficiency of Monetary Exchange," Working Papers. Serie AD 2011-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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