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Reducing the Lower Bound on Market Interest Rates

Author

Listed:
  • Ulrich van Suntum
  • Metin Kaptan
  • Cordelius Ilgmann

    (Centrum für angewandte Wirtschaftsforschung, University of Muenster, Am Stadtgraben 9, 48143 Münster, Germany)

Abstract

This paper critically discusses three proposals to overcome the zero interest bound, which have recently been proposed by prominent economists. We trace back the historical origins of these proposals, reaching back to the late 19th century, and comment on their theoretical and practical deficiencies. We propose a much simpler method to spur real investment in times of a deep recession, based on long term central bank loans with low but non-negative base rates. With the prospect of decreasing default risks after the recession, this measure has a similar effect like negative base rates in time of crisis. We therefore hope to convey the message that the effects of the zero interest bound can at least be mitigated without substantially changing the existing monetary regime.

Suggested Citation

  • Ulrich van Suntum & Metin Kaptan & Cordelius Ilgmann, 2011. "Reducing the Lower Bound on Market Interest Rates," Economic Analysis and Policy, Elsevier, vol. 41(2), pages 133-146, September.
    • Handle: RePEc:eee:ecanpo:v:41:y:2011:i:2:p:133-146
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    More about this item

    Keywords

    negative interest rates; lower zero bound; monetary policy;
    All these keywords.

    JEL classification:

    • 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

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