The Case for Implementing Effective Negative Interest Rate Policy

46 Pages Posted: 2 Aug 2019

See all articles by Andrew Lilley

Andrew Lilley

Novi Financial, Inc.

Kenneth Rogoff

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: July 26, 2019

Abstract

This paper explores the case for gradually instituting changes necessary to implement unconstrained negative interest rate policy as a long-term solution to the effective lower bound on policy interest rates. If small depositors can be excluded, then passthrough of negative rates to large and wholesale bank depositors should be straightforward with administrative and pecuniary obstacles to large-scale hoarding. We argue that pure quantitative easing will be an insufficient tool to raise inflation expectations in the next recession using evidence that market participants have updated their beliefs of its potency. We present a systematic categorization of alternative policies and their constraints.

Keywords: monetary policy, zero lower bound, quantitative easing

JEL Classification: E630, E580, E520, E660

Suggested Citation

Lilley, Andrew and Rogoff, Kenneth S., The Case for Implementing Effective Negative Interest Rate Policy (July 26, 2019). Available at SSRN: https://ssrn.com/abstract=3427388 or http://dx.doi.org/10.2139/ssrn.3427388

Andrew Lilley (Contact Author)

Novi Financial, Inc. ( email )

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Kenneth S. Rogoff

Harvard University - Department of Economics ( email )

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