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Understanding Benign Liquidity Traps: The Case of Japan

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  • Homburg Stefan

    (Leibniz University Hannover, Hanover, Germany)

Abstract

Japan has been in a benign liquidity trap since the 1990s. In a benign liquidity trap, interest rates approach zero and monetary policy is ineffective but output and employment perform decently. Such a pattern contradicts traditional macro theories. This paper introduces a monetary general equilibrium model that is compatible with Japan’s performance and resolves puzzles associated with liquidity traps. Possible conclusions for Anglo-Saxon countries and eurozone members are also discussed.

Suggested Citation

  • Homburg Stefan, 2017. "Understanding Benign Liquidity Traps: The Case of Japan," German Economic Review, De Gruyter, vol. 18(3), pages 267-282, August.
    • Handle: RePEc:bpj:germec:v:18:y:2017:i:3:p:267-282
    DOI: 10.1111/geer.12105
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Benign liquidity traps
      by Tyler Cowen in Marginal Revolution on 2015-07-10 09:01:17

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    Cited by:

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    3. Niklas Potrafke & Markus Reischmann, 2016. "How to Handle the Crisis in Greece? Empirical Evidence Based on a Survey of Economics Experts," CESifo Working Paper Series 5860, CESifo.
    4. Knolle, Julia & Lehmann, Kai, 2016. "An Empirical Assessment of Global Capital Productivity," Hannover Economic Papers (HEP) dp-574, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    5. Niklas Potrafke & Markus Reischmann, 2016. "How to Deal with the Crisis in Greece – A Survey of International Experts," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 69(10), pages 34-36, May.
    6. Ken-ichi Hashimoto & Yoshiyasu Ono & Matthias Schlegl, 2020. "Structural Unemployment, Underemployment, and Secular Stagnation," CESifo Working Paper Series 8318, CESifo.
    7. John H. Cochrane, 2017. "Michelson-Morley, Fisher, and Occam: The Radical Implications of Stable Quiet Inflation at the Zero Bound," NBER Chapters, in: NBER Macroeconomics Annual 2017, volume 32, pages 113-226, National Bureau of Economic Research, Inc.
    8. van Riet Ad, 2019. "Monetary Policy and Unnatural Low Interest Rates: Secular Stagnation or Financial Repression?," Review of Economics, De Gruyter, vol. 70(2), pages 99-135, August.

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    More about this item

    Keywords

    Liquidity trap; Japan; interest rate determination; monetary policy; quantitative easing; forward guidance; dynamic general equilibrium; secular stagnation;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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