An Early Experiment with "Permazero"

Stephen Quinn and William Roberds

Working Paper 2017-5
May 2017

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We investigate a monetary regime with persistent, near-zero policy interest rates ("permazero" in the terminology of Bullard 2015). This regime was implemented in 1683 by a prominent early central bank called the Bank of Amsterdam ("Bank"). The Bank fixed its policy rate at one-half percent and held it unchanged for more than a century. Maintaining the rate helped stabilize the value of Bank money. We employ archival data to reconstruct the Bank's activities during a portion of that interval (1736–91) for which data are most readily available. The data suggest that "permazero" worked well for long periods because the Bank counteracted market swings with quantitative operations. These same data show how fiscal exploitation denied the Bank sufficient resources to stabilize large shocks, with adverse results.

JEL classification: E58, E65, N13

Key words: central banks, monetary policy, zero lower bound

The authors are grateful to participants in the Federal Reserve Bank of Richmond's Monetary and Financial History Workshop; the Bank of Canada's Festschrift for Charles Kahn; the Federal Reserve Bank of New York's Workshop in Honor of Jamie McAndrews; the 2016 Joint Central Bankers' Conference in Nashville, Tennessee; the 2017 meeting of the Caltech Early Modern Group; and the 2017 Federal Reserve System Macro Meeting for helpful comments on earlier versions. They also thank Ben Chabot, Ellis Tallman, François Velde, Dan Waggoner, and Warren Weber for detailed comments. François Velde provided the authors with data on Hamburg gold prices, and Larry Neal shared data on London bill of exchange prices. Pamela Frisbee, Hongyi Fu, and Brian Robertson provided research assistance. Finally, they are grateful to the staff of the Amsterdam Municipal Archives (Stadsarchief Amsterdam) for the special attention given to the many requests for archival materials. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.
Please address questions regarding content to Stephen Quinn, Texas Christian University, Department of Economics, Box 298510, Fort Worth, TX 76129,, or William Roberds, Federal Reserve Bank of Atlanta, Research Department, 1000 Peachtree Street NE, Atlanta, GA 30309-4470, 404 498-8970,
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