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

Willem Hendrik Buiter

No 7346, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Eisler; Gesell; liquidity trap; Monetary policy; quantitative easing; zero interest rate policy (search for similar items in EconPapers)
JEL-codes: B1 B2 B3 E1 E3 E4 E5 F3 F4 G1 H2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-mon
Date: 2009-06

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