A global analysis of liquidity effects, interest rate rules, and deflationary traps
AbstractThe prevailing models of liquidity traps suggest that a deflationary trap is a stable steady state in a multiple equilibria model. These models implicitly assume that the central bank accelerates the process of disinflation by following a Taylor rule even though there is a long run positive relationship between the nominal interest rate and inflation rate. This paper presents a reduced-form model that integrates liquidity effects into the analysis of interest rate rules to generalize the previous results about uniqueness, determinacy, and dynamic property of the economy.
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Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 29 (2009)
Issue (Month): 2 ()
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Taylor rules; liquidity effects; liquidity traps; deflation.;
Find related papers by JEL classification:
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
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