In The Curse of Cash, Rogoff (2016) makes two arguments. (i) Large denominations of currency are primarily used for illegal activity. Therefore, eliminating them would have benefits that far outweigh the costs in terms of lost seigniorage. (ii) The zero lower bound (ZLB) on the interest rate implied by the possibility of holding large amounts of currency is a costly constraint on central-bank policy. The best way to eliminate the ZLB is to eliminate all but small denominations of currency, ten dollars and lower, and to have those be in the form of coins. The style of the book, no models and no symbols, works fairly well for (i), but not so well for (ii). For (ii), the author is unclear about a crucial matter: what fiscal policy accompanies alternative interest-rate settings chosen by the central bank? ( JEL E26, E42, E43, E52, E58, E62)
Fiscal Policy at the Zero Lower Bound without Rational Expectations
