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

Willem H. Buiter

NBER Working Paper No. 15118
Issued in June 2009
NBER Program(s):International Finance and Macroeconomics, Monetary Economics

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.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w15118

Published: Buiter, Willem H., 2009. "Negative nominal interest rates: Three ways to overcome the zero lower bound," The North American Journal of Economics and Finance, Elsevier, vol. 20(3), pages 213-238, December. citation courtesy of

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