TY - JOUR
T1 - Global liquidity trap
AU - Fujiwara, Ippei
AU - Nakajima, Tomoyuki
AU - Sudo, Nao
AU - Teranishi, Yuki
N1 - Funding Information:
For helpful comments and discussions, we thank Klaus Adam, Joshua Aizenman, Michele Cavallo, Larry Christiano, Michael Devereux, Marty Eichenbaum, Yiping Huang, Takatoshi Ito, Jinill Kim, Michael Krause, Giovanni Lombardo, Bartosz Mackowiak, Shinichi Nishiyama, Paolo Pesenti, Andrew Rose, Lars Svensson, Kazuo Ueda, Tack Yun, Tsutomu Watanabe, Mike Woodford, an anonymous referee, the associate editor (Alexander Wolman), and the co-editor (Ricardo Reis), as well as seminar and conference participants at Australian National University, Bank of Canada, Bank of Italy, Bank of Japan, Federal Reserve Board, Osaka University, Reserve Bank of New Zealand, University of Melbourne, University of Tokyo, ECB-IFS-Bundesbank seminar, Far East and South Asia Meeting of the Econometric Society, NBER-EASE, and Summer Workshop on Economic Theory. Nakajima gratefully acknowledges financial support from the Murata Science Foundation and JSPS. Views expressed in this paper are those of the authors and do not necessarily reflect the official views of the Bank of Japan.
PY - 2013/11
Y1 - 2013/11
N2 - How should monetary policy respond to a "global liquidity trap," where the two countries may fall into a liquidity trap simultaneously? Using a two-country New Open Economy Macroeconomics model, we first characterize optimal monetary policy, and show that the optimal rate of inflation 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. The interest-rate rule targeting the producer price index performs well in this respect.
AB - How should monetary policy respond to a "global liquidity trap," where the two countries may fall into a liquidity trap simultaneously? Using a two-country New Open Economy Macroeconomics model, we first characterize optimal monetary policy, and show that the optimal rate of inflation 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. The interest-rate rule targeting the producer price index performs well in this respect.
KW - International spillover
KW - Monetary policy cooperation
KW - Two-country model
KW - Zero interest rate policy
UR - http://www.scopus.com/inward/record.url?scp=84888379553&partnerID=8YFLogxK
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U2 - 10.1016/j.jmoneco.2013.08.004
DO - 10.1016/j.jmoneco.2013.08.004
M3 - Article
AN - SCOPUS:84888379553
SN - 0304-3932
VL - 60
SP - 936
EP - 949
JO - Carnegie-Rochester Confer. Series on Public Policy
JF - Carnegie-Rochester Confer. Series on Public Policy
IS - 8
ER -