Working Paper: NBER ID: w15118
Authors: Willem H. Buiter
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: negative nominal interest rates; zero lower bound; monetary policy
JEL Codes: E31; E4; E41; E42; E43; E44; E5; E52; E58; G01
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Abolishing currency (E42) | Flexibility in setting interest rates (E43) |
| Paying negative interest on currency (E43) | Alleviation of the zero lower bound (E49) |
| Decoupling the numraire from currency (F31) | Setting a negative nominal interest rate (E43) |