Global Liquidity Trap

Ippei Fujiwara, Tomoyuki Nakajima, Nao Sudo and Yuki Teranishi

No 780, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: Using a two-country New Open Economy Macroeconomics model, we analyze how monetary policy should respond to a "global liquidity trap," where the two countries may fall into a liquidity trap simultaneously. We first characterize optimal monetary policy, and show that the optimal rate of infl ation in one country is affected by whether or not the other country is in a liquidity trap. We next examine how well the optimal monetary policy is approximated by relatively simple monetary policy rules. We find that the interest-rate rule targeting the producer price index performs very well in this respect.

Keywords: Zero interest rate policy; two-country model; international spillover; monetary policy coordination (search for similar items in EconPapers)
JEL-codes: E52 E58 F41 (search for similar items in EconPapers)
Pages: 30pages
Date: 2011-06
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Global liquidity trap (2013)
Working Paper: Global liquidity trap (2013)
Working Paper: Global Liquidity Trap (2011)
Working Paper: Global liquidity trap (2010)
Working Paper: Global Liquidity Trap (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:780

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