02/04/2016 - Collection Of Articles On Negative Interest Rates
Courtesy of Deutsche Bank and Cumberland Advisors/Camp Kotok:
INTEREST RATE PASSTHROUGH AND THE DEMAND FOR CASH AT NEGATIVE INTEREST RATES
We find that negative interest rates have not weakened the pass-through from Danmarks Nationalbank’s interest rates to money market rates.
Riksbank: How far can the repo rate be cut?
The lower limit ultimately depends on costs associated with holding cash. Before this happens, however, it is possible that frictions will occur which reduce the impact of cutting the repo rate further. In addition, risks to the financial system will increase the lower the rate goes. One important factor that is difficult to assess is also whether negative policy rates change the behavior of households and companies.
Rogoff: Costs and benefits to phasing out paper currency
http://scholar.harvard.edu/files/rogoff/files/c13431.pdf
This paper explores the costs and benefits to phasing out paper currency, beginning with large-denomination notes, later extending to all but small coins and bills, and eventually those as well. It is hardly a simple issue; paper currency is deeply ingrained in the public’s image of government and country, and any attempt to change long-standing monetary conventions raises a host of complex issues.
Fed (New York): If Interest Rates Go Negative . . . Or, Be Careful What You Wish For
We suggest that significantly negative rates—that is, rates below -50 basis points—may spawn a variety of financial innovations, such as special-purpose banks and the use of certified bank checks in large-value transactions, and novel preferences, such as a preference for making early and/or excess payments to creditworthy counterparties and a preference for receiving payments in forms that facilitate deferred collection.
Fed (Richmond): Overcoming the Zero Bound on Interest Rate Policy
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.
BoE: How low can you go?
http://www.bankofengland.co.uk/publications/Documents/speeches/2015/speech840.pdf
…central banks may then need to think imaginatively about how to deal on a more durable basis with the technological constraint imposed by the zero lower bound on interest rates. That may require a rethink, a fairly fundamental one, of a number of current central bank practices.
What Lower Bound? Monetary Policy with Negative Interest Rates
http://www.mit.edu/~mrognlie/rognlie_jmp.pdf
…gains from negative rates depend inversely on the level and elasticity of currency demand. Credible commitment by the central bank is essential to implementing optimal policy, which backloads the most negative rates. My results imply that the option to set negative nominal rates lowers the optimal long-run inflation target, and that abolishing paper currency is only optimal when currency demand is highly elastic.
BoC: The International Experience with Negative Policy Rates
http://www.bankofcanada.ca/wp-content/uploads/2015/11/dp2015-13.pdf
A key issue in the renewal of the inflation-control agreement is the question of the appropriate level of the inflation target. Many observers have raised concerns that with the reduction in the neutral rate, and the experience of the recent financial crisis, the effective lower bound (ELB) is more likely to be binding in the future if inflation targets remain at 2 per cent. This has led some to argue that the inflation target should be raised to reduce the incidence of ELB episodes. Much of this debate has assumed that the ELB is close to, but not below, zero. Recently, however, a number of central banks have introduced negative policy interest rates. This paper outlines the concerns associated with negative interest rates, provides an overview of the international experience so far with negative policy rates and sets out some general observations based on this experience. It then discusses how low policy interest rates might be able to go in these economies, and offers some considerations for the renewal of the inflation-control agreement.
OVERCOMING THE ZERO BOUND WITH NEGATIVE INTEREST RATE POLICY
http://www.cepr.org/sites/default/files/Goodfriend%20slides.pdf
The Malady of Low Global Interest Rates
http://www.levyinstitute.org/pubs/wp_852.pdf
