Macroeconomic effects of CBDC negative interest policy in an open economy: A comparison of quantity and price rules

We construct a Dynamic Stochastic General Equilibrium (DSGE) model of a small open economy to investigate the effects of central bank digital currency (CBDC) negative interest rates on various sectors of the macroeconomy. Furthermore, we analyze the heterogeneous responses of quantity-based and price-based monetary policies. Our findings can be summarized as follows. (1) In an open economy, the CBDC negative interest rate policy can enhance the central bank's macroeconomic regulatory capacity during recessions by breaking the zero lower bound constraint on deposit interest rates. This provides a novel monetary policy tool to prevent "liquidity trap". (2) CBDC negative interest rates can strengthen the effectiveness of the quantity-based and price-based monetary policies. Specifically, it not only amplifies the short-term effects of quantity-based monetary policy and the medium- and long-term effects of price-based monetary policy, but also prolongs the effective duration of quantity-based monetary policy and reduces the transmission time lag of price-based monetary policy. (3) CBDC negative interest rates can strengthen the linkage between long-term and short-term monetary policy tools, increase the sensitivity of macroeconomic sectors to foreign monetary policy shocks, and enhance the smooth functioning of the monetary policy transmission mechanism.