Negative Nominal Interest Rates: Three ways to overcome the zero lower bound
The paper considers three methods for eliminating the zero lower bound on nominal interest rates and thus for restoring symmetry to domain over which the central bank can vary its 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 which can be set to achieve a forward discount (expected depreciation) of the currency vis-a-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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| Date of creation: | Jul 2009 |
| Date of revision: | |
| Handle: | RePEc:fmg:fmgdps:dp636 |
| Contact details of provider: | Web page: http://www.lse.ac.uk/fmg/
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