Reducing the Lower Bound on Market Interest Rates

Ulrich van Suntum, Metin Kaptan and Cordelius Ilgmann ()
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Cordelius Ilgmann: Centrum für angewandte Wirtschaftsforschung, University of Muenster, Am Stadtgraben 9, 48143 Münster, Germany

Economic Analysis and Policy, 2011, vol. 41, issue 2, 133-146

Abstract: This paper critically discusses three proposals to overcome the zero interest bound, which have recently been proposed by prominent economists. We trace back the historical origins of these proposals, reaching back to the late 19th century, and comment on their theoretical and practical deficiencies. We propose a much simpler method to spur real investment in times of a deep recession, based on long term central bank loans with low but non-negative base rates. With the prospect of decreasing default risks after the recession, this measure has a similar effect like negative base rates in time of crisis. We therefore hope to convey the message that the effects of the zero interest bound can at least be mitigated without substantially changing the existing monetary regime.

Keywords: negative interest rates; lower zero bound; monetary policy (search for similar items in EconPapers)
JEL-codes: E3 E4 E5 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:41:y:2011:i:2:p:133-146

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