The 36th Frontier Forum for Digital Technology and Finance

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 Introduction：

Pengfei Jia is currently an Associate Professor in the Department of Economics at the School of Business, Nanjing University. He holds a Ph.D. in Economics from the University of Manchester, UK, and serves as an Associate Researcher at the Institute for Higher Education Research, UK. 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 policies, fiscal policies, and international finance. His research has been published in various domestic and international academic journals such as European Economic Review, Macroeconomic Dynamics, Journal of Macroeconomics, B.E. Journal of Macroeconomics, Economics Letters, Economic Research Journal, Chinese Journal of Quantitative & Technical Economics, Finance & Trade Economics, China Soft Science, and Internal Documents of Chinese Social Sciences. His papers have been reprinted in full by Higher Education Humanities and Social Sciences Abstracts and People's University Reprint Series. He has led and participated in multiple National Natural Science Foundation of China and National Social Science Fund projects. His research achievements have won the Second Prize of the 9th Award for Outstanding Scientific Research Achievements in Higher Education Institutions (Humanities and Social Sciences) by the Ministry of Education, the First Prize of the 13th Award for Outstanding Social Science Achievements in Jilin Province, the Second Prize of the 17th Award for Outstanding Achievements in Philosophy and Social Sciences in Jiangsu Province, and the 6th Hong Yinxing Economics Award.