Are negative interest rates enough?
I'm going to mention Scott Sumner one more time and then give him a break. For the last six months he's been recommending that central banks (mainly in the US, but presumably worldwide) pay a negative interest rate on commercial bank reserves. (for reference, here's another in a string of recent articles justifying why the Federal Reserve pays positive interest on reserves, without even mentioning the negative interest option. Are they under instruction not to discuss it?) In short, the argument is this. Quantitative easing works by paying banks cash in return for their government bonds. Since they don't earn any interest on cash (unlike on the bonds they were holding previously) they will want to lend out the newly acquired cash into the private sector so that they at least make some money on it. This (depending on your model) will boost the velocity of money, or increase the relevant measures of money supply, or increase inflation expectations, or increase investment...
