I had a good chance to talk to Narayana Kocherlakota in person at the Brookings conference on negative interest rates on June 6, 2016, and you can see him on the video nodding when I said that we should be telling people that deep negative interest rates are possible if needed. And sure enough, on June 9, Narayana wrote about the possibility of eliminating the zero lower bound in his Bloomberg View column “Negative Rates Are Nothing to Fear.” Here is the relevant passage:
Negative interest rates could eventually become an even more powerful tool. Some economists – such as University of Michigan economist Miles Kimball, who presented at the Brookings conference – point out that central banks are capable of taking rates as far below zero as they deem necessary. To increase the cost of holding currency, for example, they could charge banks a fee to change it into electronic central bank money.
Economically useful as such an option would be, central bankers must recognize that the prospect of being charged, say, 6 percent a year just to hold cash could unsettle people. For such a policy to work as intended, officials would have to do a lot of explaining ahead of time – communication that could have the added benefit of ensuring that the public understands the central bank’s goals and supports its methods of achieving them.
The Brookings conference on negative interest rates was a milestone in many other ways as well. Let me go so far as to say that no journalist writing about negative interest rates is well informed unless they have watched that Brookings conference.