Global liquidity trap

Ippei Fujiwara, Tomoyuki Nakajima, Nao Sudo, Yuuki Teranishi

Research output: Contribution to journalArticle

9 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)936-949
Number of pages14
JournalJournal of Monetary Economics
Volume60
Issue number8
DOIs
Publication statusPublished - 2013 Nov

Fingerprint

Liquidity trap
Optimal monetary policy
Interest rate rules
Price index
Monetary policy
Targeting
Macroeconomic models
New open economy macroeconomics
Producer prices
Monetary policy rules
Inflation

Keywords

  • International spillover
  • Monetary policy cooperation
  • Two-country model
  • Zero interest rate policy

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

Cite this

Global liquidity trap. / Fujiwara, Ippei; Nakajima, Tomoyuki; Sudo, Nao; Teranishi, Yuuki.

In: Journal of Monetary Economics, Vol. 60, No. 8, 11.2013, p. 936-949.

Research output: Contribution to journalArticle

Fujiwara, Ippei ; Nakajima, Tomoyuki ; Sudo, Nao ; Teranishi, Yuuki. / Global liquidity trap. In: Journal of Monetary Economics. 2013 ; Vol. 60, No. 8. pp. 936-949.
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