Global liquidity trap

Ippei Fujiwara, Tomoyuki Nakajima, Nao Sudo and Yuki Teranishi

Journal of Monetary Economics, 2013, vol. 60, issue 8, 936-949

Abstract: How should monetary policy respond to a “global liquidity trap,” where the two countries may fall into a liquidity trap simultaneously? Using a two-country New Open Economy Macroeconomics model, we first characterize optimal monetary policy, and show that the optimal rate of inflation in one country is affected by whether or not the other country is in a liquidity trap. We next examine how well the optimal monetary policy is approximated by relatively simple monetary policy rules. The interest-rate rule targeting the producer price index performs well in this respect.

Keywords: Zero interest rate policy; Two-country model; International spillover; Monetary policy cooperation (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (21)

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Related works:
Working Paper: Global liquidity trap (2013)
Working Paper: Global Liquidity Trap (2011)
Working Paper: Global Liquidity Trap (2011)
Working Paper: Global liquidity trap (2010)
Working Paper: Global Liquidity Trap (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:60:y:2013:i:8:p:936-949

DOI: 10.1016/j.jmoneco.2013.08.004

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