Negative nominal interest rates and monetary policy

• 成果类型: Article
• 署名作者: Kim, Duhyeong
• 署名单位: University System of Ohio; Kent State University; Kent State University Kent; Kent State University Salem
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/j.jmoneco.2025.103799
• 发表日期: 2025
• 关键词: Negative interest rate; effective lower bound; money; banking; monetary policy

摘要

How much can central banks reduce nominal interest rates? Can the lower bound be controlled by monetary policy? If so, should central banks reduce it to implement negative interest rates? I construct a model with multiple means of payment where the costs of holding paper currency effectively reduce its rate of return, creating a negative effective lower bound on interest rates. I find that central banks can reduce this lower bound with a non-par exchange rate between currency and bank reserves, but doing so raises currency-holding costs for individuals, leading to welfare losses. Moreover, implementing a negative rate by reducing the lower bound has no benefits because this policy combination lowers both the rate of return on currency and the interest rate on financial assets, leaving relative interest rates unchanged.