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Determinate liquidity traps

Demosthenes Tambakis ()

Economics Letters, 2015, vol. 135, issue C, 126-132

Abstract: I study the long run determinacy tradeoff–recurrent episodes of passive monetary policy are (in)determinate if their expected duration is long (brief)–when passive policy is at the zero bound. On-going regime change implies qualitatively different shock transmission from the standard New Keynesian model. For US baseline parameter values, I find temporary fiscal stimulus is effective, while adverse supply shocks can be expansionary if the central bank’s active policy stance is weak and/or if the liquidity trap’s average duration exceeds 3 quarters.

Keywords: Zero bound; Monetary policy; Regime-switching; Determinacy (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 E61 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:135:y:2015:i:c:p:126-132

DOI: 10.1016/j.econlet.2015.08.004

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