Global Liquidity Trap: A Simple Analytical Investigation

Ippei Fujiwara, Nao Sudo and Yuki Teranishi

No 09-E-31, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: How should monetary policy cooperation be designed when more than one country simultaneously faces zero lower bounds on nominal interest rates? To answer this question, we examine monetary policy cooperation with both optimal discretion and commitment policies in a two- country model. We reach the following conclusions. Under discretion, monetary policy cooperation is characterized by the intertemporal elasticity of substitution (IES), a key parameter measuring international spillovers, and no history dependency. On the other hand, under commitment, monetary policy features history dependence with international spillover effects.

Keywords: Optimal Monetary Policy Cooperation; Zero Lower Bound (search for similar items in EconPapers)
JEL-codes: E52 F33 F41 (search for similar items in EconPapers)
Date: 2009-11
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:09-e-31

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