Optimal Monetary Policy in a Liquidity Trap with Heterogeneous Agents

Xavier Ragot

Annals of Economics and Statistics, 2023, issue 149, 97-124

Abstract: This paper derives the optimal money injection at the Zero Lower Bound (ZLB), in a tractable model where households hold heterogeneous money holdings due to explicit financial frictions, such as limited participation and temporary binding credit constraints. This framework is motivated by recent empirical findings. A deleveraging shock generates deflationary pressure and a fall in the real interest rate, pushing the economy to the ZLB. The main result is that open-market operations can stabilize the economy at the ZLB whereas lump-sum money transfers cannot. Moreover, an optimal money injection does not avoid the economy being at the ZLB.

Keywords: Liquidity Trap; Zero Lower Bound; Heterogeneous Agents; Optimal Policy. (search for similar items in EconPapers)
JEL-codes: E32 E41 E52 (search for similar items in EconPapers)
Date: 2023
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Related works:
Working Paper: Optimal Monetary Policy in a Liquidity Trap with Heterogeneous Agents (2023)
Working Paper: Optimal Monetary Policy in a Liquidity Trap with Heterogeneous Agents (2023)
Working Paper: Optimal Monetary Policy in a Liquidity Trap with Heterogeneous Agents (2017)
Working Paper: Optimal Monetary Policy in a Liquidity Trap with Heterogeneous Agents (2017)
Working Paper: Optimal Monetary Policy in a Liquidity Trap with Heterogeneous Agents (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:adr:anecst:y:2023:i:149:p:97-124

DOI: 10.2307/48718081

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