Wealth effects, the Taylor rule and the liquidity trap

Barbara Annicchiarico (), Giancarlo Marini and Alessandro Piergallini

International Journal of Economic Theory, 2009, vol. 5, issue 3, 315-331

Abstract: This paper analyzes the dynamic properties of the Taylor rule with the zero lower bound on the nominal interest rate in an optimizing monetary model with overlapping generations à la Yaari–Blanchard–Weil. The main result is that the presence of wealth effects is not sufficient to rule out the possibility of infinite equilibrium paths with decelerating inflation. In particular, in the presence of wealth effects, the occurrence of liquidity traps is not avoided when the central bank implements a Taylor‐type interest‐rate feedback rule.

Date: 2009
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https://doi.org/10.1111/j.1742-7363.2009.00112.x

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Working Paper: Wealth Effects, the Taylor Rule and the Liquidity Trap (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:ijethy:v:5:y:2009:i:3:p:315-331

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