tag:blogger.com,1999:blog-8897997766931633186.post784603310729377950..comments2024-02-14T03:21:37.506-05:00Comments on Monetary Freedom: Negative Nominal Interest RatesBill Woolseyhttp://www.blogger.com/profile/06330232724290161369noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-8897997766931633186.post-63445604380885670082013-01-26T19:41:12.039-05:002013-01-26T19:41:12.039-05:00Regarding the "tax" on reserves: this is...Regarding the "tax" on reserves: this is equal to the difference between IOR and Fed Funds. And the Fed can't simultaneously set this "tax" and the quantity of reserves. It's impossible, since with IOR < FF, an injection of reserves (unrelated to demand) would cause FF to fall.<br /><br />Nothing about a negative Fed Funds rate is a tax, since banks aren't obligated to pay a positive rate of interest on deposits.<br />Maxnoreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-61714817463008006522013-01-26T18:49:51.633-05:002013-01-26T18:49:51.633-05:00We probably don't actually need negative rates...We probably don't actually need negative rates. But we desperately need the possibility of negative rates.<br /><br />Once the Fed demonstrates that it's willing and able to set an arbitrarily negative rate, the equilibrium rate will surely increase.<br /><br />And so we shouldn't worry about how currency users will suffer. They won't suffer, or at worst the suffering will be brief.<br /><br />But what if the economy really, truly needs negative rates for the long haul (given a 2% inflation target)? Seems unlikely, but if it's a choice between making currency users suffer a little and making everyone suffer a lot, the latter is the lesser evil.<br />Maxnoreply@blogger.com