Unconventional monetary policy and negative interest rates: a Post-Keynesian perspective on the liquidity trap and euthanasia of the rentier*

Abstract

This article discusses ‘unconventional’ monetary policy after the 2008 crisis. The focus is the original theoretical basis for such policy and possible Keynesian readings and criticisms. Drawing inspiration mainly from Keynes (1930; 1936) and Minsky (1975), the paper seeks to explain why ultra-low/negative interest rates neither caused ‘rentiers’ to die, nor achieved full employment. The main hypothesis goes in the direction pointed to by Keynes: the problem is the low marginal efficiency of capital, the liquidity trap, and the lack of active government fiscal policy, which should be used in conjunction with monetary policy that maintains low long-term interest rates in order to spur investment. Monetary policy and very low/negative interest rates seem insufficient to overcome low growth. They are also incapable, at least in the short term, of promoting euthanasia of the rentiers as current monetary policy allows financial institutions to benefit from the capital gains it spurs.