Hostname: page-component-cd9895bd7-dzt6s Total loading time: 0 Render date: 2024-12-19T08:08:59.815Z Has data issue: false hasContentIssue false
  • English
  • Français

Negative Interest Rate Policy as Conventional Monetary Policy

Published online by Cambridge University Press:  01 January 2020

Miles S. Kimball
Miles S. Kimball*
Affiliation:
University of Michigan Professor of Economics and Survey Research. Quartz Columnist and Independent Blogger on Economics, Politics and Religion
*
E-mail: [email protected]; Blog: http://blog.supplysideliberal.com
Get access Rights & Permissions [Opens in a new window]

Abstract

As long as all interest rates move in tandem – including the rate of return on paper currency – economic theory suggests no important difference between interest rate changes in the positive region and interest rate changes in the negative region. Indeed, in standard models, only the real interest rate and spreads between real interest rates matter. Thus, in most respects, negative interest rate policy is conventional. It is only (a) what needs to be done with paper currency, (b) difficulties in understanding negative rates or (c) institutional features interacting with negative rates that make negative interest rate policy unconventional.

Keywords

monetary policynegative interest ratesunconventionalstabilisationtransmissionE52E58E42E43E41E31
Type
Research Articles
Information
National Institute Economic Review , Volume 234 , November 2015 , pp. R5 - R14
Copyright
Copyright © 2015 National Institute of Economic and Social Research

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

Along with coauthors, I have several academic papers on negative interest rate policy in the works. In particular, this paper builds on Agarwal and Kimball (2015).

References

Agarwal, R. and Kimball, M.S. (2015), ‘Breaking through the zero lower bound’, IMF Working Paper no. 15/224, available at http://www.imf.org/external/pubs/cat/longres.aspx?sk=43358.0.CrossRefGoogle Scholar
Bernanke, B. (2015), The Courage to Act: A Memoir of a Crisis and its Aftermath, Norton.Google Scholar
Buiter, W.H. (2004), ‘Overcoming the zero bound: Gesell vs. Eisler; discussion of Mitsuhiro Fukao's “The effects of ‘Gesell” (currency) taxes in promoting Japan's economic recovery’, discussion presented at the Conference on Macro/Financial Issues and International Economic Relations: Policy Options for Japan and the United States, October 22–23, Ann Arbor, MI, USA. International Economics and Economic Policy, 2, Nos 2–3, November 2005, pp. 189–200. Publisher: Springer-Verlag GmbH; ISSN: 1612-4804 (Paper) 16124812 (Online).Google Scholar
Buiter, W.H. (2007), ‘Is numérairology the future of monetary economics? Unbundling numéraire and medium of exchange through a virtual currency with a shadow exchange rate’, Open Economies Review, Springer Netherlands; ISSN 0923-7992 (Print); 1573-708X (Online). Electronic publication date: Thursday, 3 May, 2007. See “Springer Website.”.Google Scholar
Buiter, W.H. (2009a), ‘Negative interest rates: when are they coming to a central bank near you?’, http://ft.com/maverecon, 7 May.Google Scholar
Buiter, W.H. (2009b), ‘The wonderful world of negative nominal interest rates, again’, http://ft.com/maverecon, 19 May.Google Scholar
Buiter, W.H. (2009c), ‘Negative nominal interest rates: three ways to overcome the zero lower bound’, NBER Working Paper No. 15118.CrossRefGoogle Scholar
Buiter, W.H. and Panigirtzoglou, N. (2001), ‘Liquidity traps: how to avoid them and how to escape them’, in Vanthoor, W.F.V. and Mooij, J. (eds), Reflections on Economics and Econometrics, Essays in Honour of Martin Fase, De Nederlandsche Bank NV, Amsterdam, pp. 13–58.Google Scholar
Buiter, W.H. and Panigirtzoglou, N. (2003), ‘Overcoming the zero bound on nominal interest rates with negative interest on currency: Gesell's solution’, Economic Journal, 113 (490), October, pp. 723–46.CrossRefGoogle Scholar
Danmarks Nationalbank (2015), Monetary Review, 2nd Quarter, Article 2.Google Scholar
Haldane, A.S. (2015), ‘How low can you go?’, speech given at the Portadown Chamber of Commerce, Northern Ireland, 18 September.Google Scholar
Kimball, C.E. and Kimball, M.S. (2015), ‘However low interest rates might go, the IRS will never act like a bank’, posted on Quartz, 15 April, available at http://qz.com/383737/however-low-interest-rates-might-go-the-irs-will-never-act-like-a-bank/.Google Scholar
Kimball, M.S. (2013a), ‘Electronic money: the powerpoint file’, originally posted 17 June 17 on the Tumblr blog “Confessions of a Supply-Side Liberal”, updated version accessible at http://blog.supplysideliberal.com/post/53171609818/electronic-money-the-powerpoint-file.Google Scholar
Kimball, M.S. (2013b), ‘How and why to eliminate the zero lower bound: a reader's guide’, originally posted 30 September on the Tumblr blog “Confessions of a Supply-Side Liberal”, updated version accessible at http://blog.supplysideliberal.com/post/62693219358/how-and-why-to-eliminate-the-zero-lower-bound-a.Google Scholar
Kimball, M.S. (2015), ‘18 misconceptions about eliminating the zero lower bound’, first presented 19 May at the Chief Economists’ Workshop at the Bank of England, updated Powerpoint file available at http://blog.supplysideliberal.com/post/119337047479/18-misconceptions-about-eliminating-the-zero-lower.Google Scholar
Randow, J. (2015), ‘Less than zero: when interest rates go negative’, Bloomberg View, updated 13 April, available at http://www.bloombergview.com/quicktake/negative-interest-rates.Google Scholar
Robb, G. (2015), ‘Fed officials seem ready to deploy negative rates in next crisis’, Market Watch, 12 October, available at http://www.marketwatch.com/story/fed-officials-seem-ready-to-deploy-negative-rates-in-next-crisis-2015-10-10.Google Scholar
Rogoff, K. (2014), ‘Costs and benefits to phasing out paper currency’, NBER Working Paper #20126.CrossRefGoogle Scholar