a negative nominal interest rate: application and implementation

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Mémoire de Master 2 de Macro-économie Daniel Pavlic A Negativ e Nominal In teres t Rate application and implementation October 2009 Th er e is wi despread agreement on ne ga ti ve re al interest rate s bein g a prerequisite for economic recovery when recessions are looming or already in the making. Nevertheless, when it comes to delivering negative real interest rates in a def latio nar y env ironment , con side rations on tur nin g neg at ive in nominal terms are immobilised by technical objections. Indeed, as soon as the target nominal interest rate hits the zero bound, academic discussions on the necessity of negative real interest rates seem to make altogether way for the tacit acceptance of a policy dead end. Precisely because it does not suffer from wastage, money plays an essential role in this context. Introducing negative nominal interest rates then comes as a measure which removes from money its quality of being a stable store of value. This essay will look at feasible channels to introduce carrying costs for money balances and will dress the picture of negative nominal interest rates as a policy tool. www.turningnegative.free.fr A negative nominal interest rate: application and implementation ‣ October 2009 1

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