Overcoming the zero bound on interest rate policy
Abstract: The paper proposes three options for overcoming the zero bound on interest rate policy: a carry tax on money, open market operations in long bonds, and monetary transfers. A variable carry tax on electronic bank reserves could enable a central bank to target negative nominal interest rates. A carry tax could be imposed on currency to create more leeway to make interest rates negative. Quantitative policy--monetary transfers and open market purchases of long bonds--could stimulate the economy by creating liquidity broadly defined. A central bank needs more fiscal support than usual from the Treasury to pursue quantitative policy at the interest rate floor.
Status: Published in Journal of money, credit and banking, v. 32, no. 4, pt. 2 (November 2000) ; Monetary policy in a low-inflation environment
Provider: Federal Reserve Bank of Boston
Part of Series: Conference Series ; [Proceedings]
Publication Date: 2000