Buiter on Negative Interest Rates
Paging Dr. Mankiw…
Willem Buiter has a new NBER working paper (.pdf) on negative interest rates:
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 numeraire from the currency/medium of exchange/means of payment and introducing an exchange rate between the numeraire and the currency which can be set to achieve a forward discount (expected depreciation) of the currency vis-a-vis the numeraire when the nominal interest rate in terms of the numeraire is set at a negative level for monetary policy purposes.
I know we have the technology to abolish currency right now, by attaching bank accounts to cell phones like Japan, but I wonder how long it would take for us to put it into action. My guess is there would be more resistance than one thinks.
Tags: currency, Greg Mankiw, negative interest rates, technology
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