Replication data for: Dealing with Monetary Paralysis at the Zero Bound

Summary:  View help for Summary Recently, the key constraint for central banks is the zero lower bound on nominal interest rates. Central banks fear that if they push short-term policy interest rates too deeply negative, there will be a massive flight into paper currency. This paper asks whether, in a world where paper currency is becoming increasingly vestigial outside small transactions (at least in the legal, tax compliant economy), there might be relatively simple ways to finesse the zero bound without affecting how most ordinary people live. Surprisingly, this question gets little attention compared to the massive number of articles that take the zero bound as given and look for out-of-the-box solutions for dealing with it. In an inversion of the old joke, it is a bit as if the economics literature has insisted on positing "assume we don't have a can opener," without considering the possibility that we might be able to devise one. It makes sense not to wait until the next financial crisis to develop plans. Fundamentally, there is no practical obstacle to paying negative (or positive) interest rates on electronic currency and, as we shall see, effective negative rate policy does not require eliminating paper currency.

JEL Classification:  View help for JEL Classification
      E42 Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
      E43 Interest Rates: Determination, Term Structure, and Effects
      E52 Monetary Policy
      E58 Central Banks and Their Policies
      F33 International Monetary Arrangements and Institutions