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Review of Keynesian Economics
Article . 2019 . Peer-reviewed
Data sources: Crossref
https://dx.doi.org/10.48550/ar...
Article . 2018
License: arXiv Non-Exclusive Distribution
Data sources: Datacite
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On the normality of negative interest rates

Authors: Grasselli, Matheus R.; Lipton, Alexander;

On the normality of negative interest rates

Abstract

We argue that a negative interest-rate policy (NIRP) can be an effective tool for macroeconomic stabilization. We first discuss how implementing negative rates on reserves held at a central bank does not pose any theoretical difficulty, with a reduction in rates operating in exactly the same way when rates are positive or negative, and show that this is compatible with an endogenous-money point of view. We then propose a simplified stock–flow consistent macroeconomic model where rates are allowed to become arbitrarily negative and present simulation evidence for their stabilizing effects. In practice, the existence of physical cash imposes a lower bound for interest rates, which in our view is the main reason for the lack of effectiveness of negative interest rates in the countries that adopted them as part of their monetary policy. We conclude by discussing alternative ways to overcome this lower bound, in particular the use of central-bank digital currencies.

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Keywords

FOS: Economics and business, General Economics (econ.GN), Quantitative Finance - Mathematical Finance, Mathematical Finance (q-fin.MF), Economics - General Economics

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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
13
Top 10%
Top 10%
Top 10%
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bronze