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Negative nominal interest rates: Three ways to overcome the zero lower bound

  • Buiter, Willem H.

The paper considers three methods for eliminating the zero lower bound on nominal interest rates and thus for restoring symmetry to the domain over which the Central Bank can vary its official 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; this exchange rate can be set over time to achieve a forward discount (expected depreciation) of the currency vis-à-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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File URL: http://www.sciencedirect.com/science/article/pii/S1062-9408(09)00036-9
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Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 20 (2009)
Issue (Month): 3 (December)
Pages: 213-238

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Handle: RePEc:eee:ecofin:v:20:y:2009:i:3:p:213-238
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620163

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  1. M. Fase, 2005. "On Economics and Religion," De Economist, Springer, vol. 153(1), pages 85-106, December.
  2. Buiter, Willem H. & Sibert, Anne, 2004. "Deflationary Bubbles," CEPR Discussion Papers 4528, C.E.P.R. Discussion Papers.
  3. 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.
  4. Marvin Goodfriend, 2000. "Overcoming the zero bound on interest rate policy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 1007-1057.
  5. Robert E. Hall, 1999. "Controlling the Price Level," NBER Working Papers 6914, National Bureau of Economic Research, Inc.
  6. Wilko Bolt, 2006. "Retail Payments in the Netherlands: Facts and Theory," De Economist, Springer, vol. 154(3), pages 345-372, September.
  7. Kenneth Rogoff, 1998. "Blessing or curse? Foreign and underground demand for euro notes," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 261-303, 04.
  8. Hall, Robert E., 1983. "Optimal fiduciary monetary systems," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 33-50.
  9. W. Bolt, 2003. "Retail Payments in the Netherlands: some Facts and Some Theory," WO Research Memoranda (discontinued) 722, Netherlands Central Bank, Research Department.
  10. Buiter, Willem H., 2004. "Helicopter Money: Irredeemable Fiat Money and the Liquidity Trap," CEPR Discussion Papers 4202, C.E.P.R. Discussion Papers.
  11. 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.
  12. Willem Buiter, 2007. "Is Numérairology the Future of Monetary Economics?," Open Economies Review, Springer, vol. 18(2), pages 127-156, April.
  13. 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.
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