Role of expectations in a liquidity trap

Kohei Hasui, Yoshiyuki Nakazono, Yuuki Teranishi

研究成果: Article

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A number of previous studies suggest that inflation expectations are important in considering the effectiveness of monetary policy in a liquidity trap. However, the role of inflation expectations can be very different, depending on the type of monetary policy that a central bank implements. This paper reveals how a private agent forms inflation expectation affects the effectiveness of monetary policy under the optimal commitment policy, the Taylor rule, and a simple rule with price-level targeting. We examine two expectation formations: (i) different degrees of anchoring, and (ii) different degrees of forward-lookingness. We show that how to form inflation expectations is less relevant when a central bank implements the optimal commitment policy, while it is critical when the central bank adopts the Taylor rule or a simple rule with price-level targeting. Even for the Japanese economy, the effects of monetary policy on economic dynamics significantly change according to expectation formations under rules other than the optimal commitment policy.

元の言語English
ジャーナルJournal of the Japanese and International Economies
DOI
出版物ステータスAccepted/In press - 2019 1 1

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics
  • Political Science and International Relations

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