Optimal Monetary Policy in a Liquidity Trap with Heterogeneous Agents

Xavier Ragot

Working Papers from HAL

Abstract: This paper derives the optimal money injection at the Zero Lower Bound (ZLB), in a tractable model where households hold heterogeneous money holdings due to explicit financial frictions, such as limited participation or temporary binding credit constraints. This framework is motivated by recent empirical findings. A deleveraging shock generates deflationary pressure and a fall in the real interest rate, pushing the economy to the ZLB. The main result is that open-market operations can stabilize the economy at the ZLB whereas lump-sum money transfers cannot. Moreover, an optimal money injection does not avoid the economy being at the ZLB.

Keywords: Liquidity trap; Zero lower bound; Heterogeneous agents; Optimal policy (search for similar items in EconPapers)
Date: 2017-01-01
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03459028
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Optimal Monetary Policy in a Liquidity Trap with Heterogeneous Agents (2023)
Working Paper: Optimal Monetary Policy in a Liquidity Trap with Heterogeneous Agents (2023)
Working Paper: Optimal Monetary Policy in a Liquidity Trap with Heterogeneous Agents (2023)
Working Paper: Optimal Monetary Policy in a Liquidity Trap with Heterogeneous Agents (2017)
Working Paper: Optimal Monetary Policy in a Liquidity Trap with Heterogeneous Agents (2017)
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