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Overcoming the Zero Bound on Interest Rate Policy

Marvin Goodfriend
Journal of Money, Credit and Banking
Vol. 32, No. 4, Part 2: Monetary Policy in a Low-Inflation Environment (Nov., 2000), pp. 1007-1035
DOI: 10.2307/2601157
Stable URL: http://www.jstor.org/stable/2601157
Page Count: 29
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Overcoming the Zero Bound on Interest Rate Policy
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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.

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