Inside Money, Investment, and Unconventional Monetary Policy

Lukas Altermatt

No 470, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: I develop a new monetarist model to analyze why an economy can fall into a liquidity trap, and what the effects of unconventional monetary policy measures such as helicopter money and negative interest rates are under these circumstances. I find that liquidity traps can be caused by a decrease in the bonds-to-money ratio, by a decrease in productivity of capital, or by an increase in demand for consumption. The model shows that, while conventional monetary policy cannot control inflation in a liquidity trap, unconventional monetary policies allow the monetary authority to regain control over the inflation rate, and that an increase in the bonds-to-money ratio is the only welfare-improving policy.

Date: 2019
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mon
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:470

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