Coping with deflation and the liquidity trap in the eurozone: A post Keynesian approach

Lino Sau

Journal of Post Keynesian Economics, 2018, vol. 41, issue 2, 210-235

Abstract: The ghost of deflation is once again one of the main worries of policymakers. Recently deflation is indeed characterizing the eurozone. The renewed concern about deflation is due in part to the historical association of deflationary episodes with financial crises, recession, stagnation, and even depression. In deflationary conditions, nominal interest rates are more volatile because uncertainty increases and they may come close to their lower limit of zero: If a “liquidity trap” is at work, monetary policy is incapable of stimulating aggregate demand. This article seeks to show that to avoid a “Japanization” of the eurozone it is urgent to implement adequate economic policies in accordance with the post Keynesian approach. The European Central Bank in recent times has tried to do its best to save the situation through espansive monetary policies adopting both quantitative and qualitative easing. Unfortunately, these kinds of policies have tended more to prevent the recession from becoming far worse than enabling a significant fight against deflation and promoting economic recovery. Conventional and unconventional approaches in economic policy are investigated with a critical eye and contrasted with the theoretical insights suggested by post Keynesians.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://hdl.handle.net/10.1080/01603477.2017.1387498 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mes:postke:v:41:y:2018:i:2:p:210-235

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/MPKE20

DOI: 10.1080/01603477.2017.1387498

Access Statistics for this article

More articles in Journal of Post Keynesian Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().