An Early Experiment with “Permazero”

We investigate a monetary regime with persistent, near-zero policy interest rates (“permazero”). This regime was implemented in 1683 by a prominent early central bank, the Bank of Amsterdam (“Bank”). Under this regime, the Bank’s policy rate remained at one-half percent for over a century. We employ archival data to reconstruct the Bank’s activities over a subsample of this regime (1736-1791) for which data is readily available. Over the majority of this sample, the data show that the Bank engaged in quantitative interventions that kept its money stock at a roughly constant level. These periods were associated with a stable value of Bank money and stable conditions in Amsterdam’s financial markets. In other parts of the sample, fiscal constraints limited the Bank’s ability to intervene. These periods were characterized by monetary instability, financial market disruptions, and ultimately, collapse of the Bank’s policy framework. 1 Views expressed are those of the authors and not those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. 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, Federal Reserve Bank of New York’s Workshop in Honor of Jamie McAndrews, the Financial History Group at the University of Utrecht, 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, and to Ben Chabot, Joost Jonker, Ellis Tallman, François Velde, Dan Waggoner, and Warren Weber for detailed comments. François Velde provided us 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, we are grateful to the staff of the Amsterdam Municipal Archives (Stadsarchief Amsterdam) for the special attention given to our many requests for archival materials.