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Understanding Benign Liquidity Traps: The Case of Japan

Stefan Homburg

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: Japan has been in a benign liquidity trap since 1990. In a benign liquidity trap, interest rates approach zero, prices decline, and monetary policy is ineffective but output and employment perform decently. Such a pattern contradicts traditional macro theories. This paper introduces a monetary general equilibrium model that is compatible with Japan´s performance and resolves puzzles associated with liquidity traps. Possible conclusions for Anglo-Saxon countries and eurozone members are also discussed.

Keywords: Liquidity trap; Japan; interest rate determination; monetary policy; quantitative easing; forward guidance; dynamic general equilibrium; secular stagnation. (search for similar items in EconPapers)
JEL-codes: E31 E43 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2015-06
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http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-557.pdf (application/pdf)

Related works:
Journal Article: Understanding Benign Liquidity Traps: The Case of Japan (2017) Downloads
Working Paper: Understanding Benign Liquidity Traps: The Case of Japan (2016) Downloads
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