Andrew: In the article to which you link, Kocherlakota argues that we should abolish cash in order to let real interest rates go as far negative as they will sometimes need to go. If the natural interest rate is negative during a recession, the real interest rate will have to go negative as well for the economy to recover.

I find it an odd argument because Kocherlakota writes that one constraint on how low real interest rates can go is that governments have promised to keep inflation running at or below 2 percent annually. If a low inflation target threatens economic peril, though, why not just raise it? Targeting a rate of 4 percent (lower than we had in the late 1980s) would give central banks more room to let real interest rates go negative. I’m not actually for raising the inflation target, because I think there’s a better solution to the problem Kocherlakota identifies. But higher inflation would be a much less drastic solution, with fewer negative effects, than abolishing cash.