• A
  • A
  • A
  • ABC
  • ABC
  • ABC
  • А
  • А
  • А
  • А
  • А
Regular version of the site

Monetary Policy at Negative Interest Rates

Student: Potemkina Ekaterina

Supervisor: Udara Peiris

Faculty: International College of Economics and Finance

Educational Programme: Double degree programme in Economics of the NRU HSE and the University of London (Bachelor)

Final Grade: 9

Year of Graduation: 2017

This paper intends to provide an example of violation of the Wallace neutrality of open market operations result. I construct a two-period, single perishable real good and nominal assets of bonds and fiat money, GE model with two representative combined bank-households and a combined Central Bank-Government. Effect of open market operations on the economy is modeled through change in the interest rate on deposits at the Central Bank which is negative. The violation of Wallace neutrality takes place due to the fact that the agents face different interest rates: the Lender faces a negative gross interest rate 1-i_{l} while the Borrower faces a positive gross rate 1 + i_{b}. I show that in such an economy money has real effects. Moreover, although the Central Bank is able to fully control inflation through open market operations, under a most likely situation of a relatively moderate value of monetary policy rate $i_{l}$, fiscal policy which consists of transfers of seigniorage profits to the private sector is not able to fully offset the monetary policy effect on inflation.

Full text (added June 16, 2017)

Student Theses at HSE must be completed in accordance with the University Rules and regulations specified by each educational programme.

Summaries of all theses must be published and made freely available on the HSE website.

The full text of a thesis can be published in open access on the HSE website only if the authoring student (copyright holder) agrees, or, if the thesis was written by a team of students, if all the co-authors (copyright holders) agree. After a thesis is published on the HSE website, it obtains the status of an online publication.

Student theses are objects of copyright and their use is subject to limitations in accordance with the Russian Federation’s law on intellectual property.

In the event that a thesis is quoted or otherwise used, reference to the author’s name and the source of quotation is required.

Search all student theses