We argue that a negative interest rate policy (NIRP) can be an effect tool
for macroeconomic stabilization. We first discuss how implementing negative
rates on reserves held at a central bank does not pose any theoretical
difficulty, with a reduction in rates operating in exactly the same way when
rates are positive or negative, and show that this is compatible with an
endogenous money point of view. We then propose a simplified stock-flow
consistent macroeconomic model where rates are allowed to become arbitrarily
negative and present simulation evidence for their stabilizing effects. In
practice, the existence of physical cash imposes a lower bound for interest
rates, which in our view is the main reason for the lack of effectiveness of
negative interest rates in the countries that adopted them as part of their
monetary policy. We conclude by discussing alternative ways to overcome this
lower bound , in particular the use of central bank digital currencies.