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Overcoming the zero bound on interest rate policy

  • Marvin Goodfriend

The paper proposes three options for overcoming the zero bound on interest rate policy: a carry tax on money, open market operations in long bonds, and monetary transfers. A variable carry tax on electronic bank reserves could enable a central bank to target negative nominal interest rates. A carry tax could be imposed on currency to create more leeway to make interest rates negative. Quantitative policy--monetary transfers and open market purchases of long bonds--could stimulate the economy by creating liquidity broadly defined. A central bank needs more fiscal support than usual from the Treasury to pursue quantitative policy at the interest rate floor.

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Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 00-03.

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Date of creation: 2000
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Handle: RePEc:fip:fedrwp:00-03
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