Negative nominal interest rates: Three ways to overcome the zero lower bound

The paper considers three methods for eliminating the zero lower bound on nominal interest rates and thus for restoring symmetry to the domain over which the Central Bank can vary its official policy rate. They are: (1) abolishing currency (which would also be a useful crime-fighting measure); (2) paying negative interest on currency by taxing currency; and (3) decoupling the numeraire from the currency/medium of exchange/means of payment and introducing an exchange rate between the numeraire and the currency; this exchange rate can be set over time to achieve a forward discount (expected depreciation) of the currency vis-a-vis the numeraire when the nominal interest rate in terms of the numeraire is set at a negative level for monetary policy purposes. (C) 2009 Elsevier Inc. All rights reserved.