Topic:

Negative Interest Rates on Central Bank Digital Currency

Speaker:

Jia Pengfei, Associate Professor, School of Business, Nanjing University

Host:

Xu Yonghao, Associate Professor

School of Finance, Zhongnan University of Economics and Law

Innovation and Intelligence Introduction Base for Digital Technology and Modern Finance Discipline

Time:

November 28, 2024 (Thursday) 14:00-15:30

Location:

Wenquan South Building, Room 408

Abstract

Paying negative interest rates on central bank digital currency (CBDC) becomes increasingly relevant to monetary operations, since several major central banks have been actively exploring both negative interest rate policy and CBDC after the Great Recession. This paper provides a formal analysis to evaluate the macroeconomic impact of negative interest rates on CBDC through the lens of a neoclassical general equilibrium model with monetary aggregates. In the benchmark model, agents have access to two types of assets: CBDC and productive capital. The demand for digital currency is motivated by a liquidity constraint. I show that paying negative interest on CBDC induces agents to save less and consume more via a substitution effect. A drop in savings in turn causes a fall in capital investment, subsequent output, and real money balances. To clear the money market, the price level increases. I then extend the model to include government bonds which deliver a positive return. This allows me to study a non-trivial portfolio effect: when the government pays a negative interest rate on CBDC, the tax on agents' capital spending increases, inducing a decrease in capital investment and an increase in government bonds in agents' portfolio. Such a policy causes a drop in investment and output. However, there is a transitory decline in the price level due to a "flight to quality".

Speaker

Jia Pengfei is currently an associate professor in the Department of Economics at the School of Business, Nanjing University. He holds a PhD in Economics from the University of Manchester, UK, and is also an associate researcher at the UK Higher Education Academy. He has conducted short-term research at the Monetary and Economic Department of the Bank for International Settlements. His main research areas include macroeconomics, monetary economics, central bank digital currencies, macroprudential policy, fiscal policy, and international finance. His research findings have been published in academic journals both domestically and internationally, such as European Economic Review, Macroeconomic Dynamics, Journal of Macroeconomics, B.E. Journal of Macroeconomics, Economics Letters, Economic Research Journal, The Journal of Quantitative & Technical Economics, Finance & Trade Economics, China Soft Science, and Internal Manuscripts of Chinese Social Sciences. His papers have been fully reprinted by Academic Digest of Humanities and Social Sciences in Universities and China People's University Reprint Journal. He has presided over and participated in multiple projects funded by the National Natural Science Foundation of China and the National Social Science Foundation of China. His research achievements have won the Second Prize of the 9th Excellent Achievement Award in Humanities and Social Sciences for Scientific Research in Universities and Colleges (Ministry of Education), the First Prize of the 13th Excellent Achievement Award in Social Sciences of Jilin Province, the Second Prize of the 17th Philosophical and Social Sciences Excellent Achievement Award of Jiangsu Province, and the 6th Hong Yinxing Economics Award.

Sponsor

Innovation and Intelligence Introduction Base for Digital Technology and Modern Finance Discipline

School of Finance, Zhongnan University of Economics and Law
Institute for Digital Technology and Modern Financial Innovation
School of Public Finance and Taxation; School of Economics; Wenlan School of Economics and Management;
School of Statistics and Mathematics; School of Information and Safety Engineering