Effective lower bound

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Monetary policy - interest rates.


Effective lower bound is a development of the Zero lower bound assumption that monetary policy interest rates should not be, or cannot be, lower than zero.

The effective lower bound takes into account the storage and security costs of holding physical cash.

Accordingly the effective lower bound would be negative, rather than zero.

This is the rate at which it becomes profitable for financial institutions to exchange central bank reserves for cash.

See also