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An Early Experiment with "Permazero"

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We investigate a monetary regime with persistent, near-zero policy interest rates ("permazero" in the terminology of Bullard 2015). This regime was implemented in 1683 by a prominent early central bank called the Bank of Amsterdam ("Bank"). The Bank fixed its policy rate at one-half percent and held it unchanged for more than a century. Maintaining the rate helped stabilize the value of Bank money. We employ archival data to reconstruct the Bank's activities during a portion of that interval (1736–91) for which data are most readily available. The data suggest that "permazero" worked well for long periods because the Bank counteracted market swings with quantitative operations. These same data show how fiscal exploitation denied the Bank sufficient resources to stabilize large shocks, with adverse results.

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  • Quinn, Stephen F. & Roberds, William, 2017. "An Early Experiment with "Permazero"," FRB Atlanta Working Paper 2017-5, Federal Reserve Bank of Atlanta.
  • Handle: RePEc:fip:fedawp:2017-05
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    Keywords

    central banks; monetary policy; zero lower bound;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913

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