Negative Nominal Interest Rates: Three Ways to Overcome the Zero Lower Bound

59 Pages Posted: 26 Aug 2009

See all articles by Willem H. Buiter

Willem H. Buiter

Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Columbia University; Independent Economic Adviser; Independent

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Date Written: June 2009

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

JEL Classification: B1, B2, B3, E1, E3, E4, E5, F3, F4, G1, H2

Suggested Citation

Buiter, Willem H., Negative Nominal Interest Rates: Three Ways to Overcome the Zero Lower Bound (June 2009). CEPR Discussion Paper No. DP7346, Available at SSRN: https://ssrn.com/abstract=1461975

Willem H. Buiter (Contact Author)

Centre for Economic Policy Research (CEPR)

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Columbia University ( email )

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