Scarcity of Safe Assets, Inflation, and the Policy Trap

David Andolfatto () and Stephen Williamson

No 2015-2, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We construct a model in which all consolidated government debt is used in transactions, with money being more widely acceptable. When asset market constraints bind, the model can deliver low real interest rates and positive rates of inflation at the zero lower bound. Optimal monetary policy in the face of a financial crisis shock implies a positive nominal interest rate. The model reveals some novel perils of Taylor rules.

JEL-codes: E4 E5 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2015-01-23
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
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Citations: View citations in EconPapers (48)

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Journal Article: Scarcity of safe assets, inflation, and the policy trap (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2015-002

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DOI: 10.20955/wp.2015.002

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