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How low can we go? The limits of monetary policy

Author

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  • Steven Pressman

    (Department of Economics, Colorado State University, Fort Collins, CO, USA)

Abstract

Central banks have recently pushed interest rates below zero. This was done after some considerable time with interest rates being near zero and unemployment remaining very high in many countries. The hope was that negative rates would reinvigorate monetary policy and rescue countries suffering from high unemployment and slow growth. This paper argues that negative rates are not an effective solution to the problems of high unemployment and economic stagnation, and that this policy proposal fails to understand both the nature of negative interest rates and how far interest rates might be pushed below zero percent. Rates a little bit below zero are possible because of insurance and carrying costs. Anything substantially below this would result in considerable economic harm that would exceed any economic benefits from the lower rates. This being the case, fiscal policy must be the policy of choice in difficult economic times.

Suggested Citation

  • Steven Pressman, 2019. "How low can we go? The limits of monetary policy," Review of Keynesian Economics, Edward Elgar Publishing, vol. 7(2), pages 137-150, April.
  • Handle: RePEc:elg:rokejn:v:7:y:2019:i:2:p137-150
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    Citations

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    Cited by:

    1. Citera, Emanuele & Sau, Lino, 2019. "Complexity, Conventions and Instability: the role of monetary policy," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201924, University of Turin.
    2. Massimo Pivetti, 2019. "On Interest as a Monetary Phenomenon and the ‘Best’ Interest-rate Policy," Bulletin of Political Economy, Bulletin of Political Economy, vol. 13(2), pages 167-187, December.
    3. Stefano Di Bucchianico, 2021. "Negative Interest Rate Policy to Fight Secular Stagnation: Unfeasible, Ineffective, Irrelevant, or Inadequate?," Review of Political Economy, Taylor & Francis Journals, vol. 33(4), pages 687-710, October.
    4. Sébastien Charles & Thomas Dallery & Jonathan Marie, 2021. "Covid-19 and interweaving of crises: Restoring Keynesianism in order to rebuild macroeconomic policy [Covid-19 et imbrication des crises : réhabiliter le keynésianisme pour refonder la politique ma," Post-Print hal-03148074, HAL.

    More about this item

    Keywords

    NIRP; monetary transmission; monetary policy; negative interest rates;
    All these keywords.

    JEL classification:

    • 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
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G2 - Financial Economics - - Financial Institutions and Services

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