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Negative Nominal Interest Rates: Three ways to overcome the zero lower bound

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  • Willem Buiter

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Abstract

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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File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/DP636.pdf
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Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp636.

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Date of creation: Jul 2009
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Handle: RePEc:fmg:fmgdps:dp636
Contact details of provider: Web page: http://www.lse.ac.uk/fmg/

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Find related papers by JEL classification:
  • B1 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925
  • B2 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925
  • B3 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals
  • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
  • 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
  • F3 - International Economics - - International Finance
  • F - International Economics

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  1. Buiter, Willem H. & Sibert, Anne, 2006. "Deflationary Bubbles," CEPR Discussion Papers 5637, C.E.P.R. Discussion Papers.
  2. 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.
  3. W. Bolt, 2003. "Retail Payments in the Netherlands: some Facts and Some Theory," WO Research Memoranda (discontinued) 722, Netherlands Central Bank, Research Department.
  4. Buiter, Willem H., 2004. "Helicopter Money: Irredeemable Fiat Money and the Liquidity Trap," CEPR Discussion Papers 4202, C.E.P.R. Discussion Papers.
  5. Hall, Robert E., 1983. "Optimal fiduciary monetary systems," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 33-50.
  6. Marvin Goodfriend, 2000. "Overcoming the zero bound on interest rate policy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 1007-1057.
  7. M. Fase, 2005. "On Economics and Religion," De Economist, Springer, vol. 153(1), pages 85-106, December.
  8. Willem H. Buiter & Nikolaos Panigirtzoglou, 2003. "Overcoming the zero bound on nominal interest rates with negative interest on currency: gesell's solution," Economic Journal, Royal Economic Society, vol. 113(490), pages 723-746, October.
  9. Robert E. Hall, 1999. "Controlling the Price Level," NBER Working Papers 6914, National Bureau of Economic Research, Inc.
  10. 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.
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  1. Doit-on abandonner les billets de banque ?
    by ? in D'un champ l'autre on 2014-05-23 11:06:00
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Cited by:

  1. Bennett T. McCallum, 2011. "Should central banks raise their inflation targets? Some relevant issues," Economic Quarterly, Federal Reserve Bank of Richmond, issue 2Q, pages 111-131.
  2. Dai, Meixing, 2011. "Quantitative and credit easing policies at the zero lower bound on the nominal interest rate," MPRA Paper 28129, University Library of Munich, Germany.
  3. Robert E. Hall, 2011. "Clashing Theories of Unemployment," NBER Working Papers 17179, National Bureau of Economic Research, Inc.
  4. Ulrich van Suntum, . "Economic Confidence, Negative Interest Rates, and Liquidity: Towards Keynesianism 2.0," Working Papers 200108, Institute of Spatial and Housing Economics, Munster Universitary.
  5. Michal Franta & Tomas Holub & Petr Kral & Ivana Kubicova & Katerina Smidkova & Borek Vasicek, 2014. "The Exchange Rate as an Instrument at Zero Interest Rates: The Case of the Czech Republic," Research and Policy Notes 2014/03, Czech National Bank, Research Department.
  6. Georgios KOURETAS & Mark E. WOHAR, . "The Dynamics of Inflation: A Study of a Large Number of Countries," EcoMod2010 259600097, EcoMod.
  7. Ulrich van Suntum & Metin Kaptan & Cordelius Ilgmann, . "Reducing the lower bound on market interest rates," Working Papers 200103, Institute of Spatial and Housing Economics, Munster Universitary.
  8. Kenneth S. Rogoff, . "Costs and Benefits to Phasing Out Paper Currency," Working Paper 168026, Harvard University OpenScholar.
  9. £ukasz Goczek, 2011. "Federal policy responses to the 2007-2009 credit crunch in the US," Equilibrium, Uniwersytet Mikolaja Kopernika, vol. 6, pages 27-42.
  10. Robert E. Hall, 2011. "The Long Slump," American Economic Review, American Economic Association, vol. 101(2), pages 431-69, April.
  11. repec:eap:articl:v:41:y:2011:i:2:p:133-146 is not listed on IDEAS
  12. Wenzlaff, Ferdinand & Kimmich, Christian & Richters, Oliver, 2014. "Theoretische Zugänge eines Wachstumszwangs in der Geldwirtschaft," Discussion Papers 45, University of Hamburg, Centre for Economic and Sociological Studies (CESS/ZÖSS).
  13. Ilgmann, Cordelius, 2011. "Silvio Gesell: 'a strange, unduly neglected' monetary theorist," CAWM Discussion Papers 23, Center of Applied Economic Research Münster (CAWM), University of Münster.
  14. Willem H. Buiter, 2010. "The limits to fiscal stimulus," Oxford Review of Economic Policy, Oxford University Press, vol. 26(1), pages 48-70, Spring.
  15. van Suntum, Ulrich, 2009. "Economic confidence, negative interest rates, and liquidity: Towards Keynesianism 2.0," CAWM Discussion Papers 24, Center of Applied Economic Research Münster (CAWM), University of Münster.

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