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Determinate liquidity traps

Demosthenes Tambakis ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

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 pol- icy is at the zero bound. On-going regime change implies qualitatively different shock transmission from the standard New Keynesian model. For U.S. 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: 2015-07-19
New Economics Papers: this item is included in nep-ger, nep-mac and nep-mon
Note: dnt22
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