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Policy Interaction, Expectations and the Liquidity Trap Author info | Abstract | Publisher info | Download info | Related research | Statistics George W. Evans (University of Oregon)
Seppo Honkapohja (University of Helsinki)
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We consider inflation and debt dynamics under a global interest rate rule when private agents forecast using adaptive learning. Given the zero lower bound on interest rates, active interest rate rules are known to imply the existence of a second, low-inflation steady state. Under learning the economy can slip below this low-inflation steady state and be driven to an even lower inflation floor supported by a switch to an aggressive money supply rule. Fiscal policy alone cannot push the economy out of this liquidity trap. Raising the inflation floor sufficiently can ensure a return to the target equilibrium. (Copyright: Elsevier)
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics .
Volume (Year): 8 (2005)
Issue (Month): 2 (April)
Pages: 303-323
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Handle: RePEc:red:issued:v:8:y:2005:i:2:p:303-323Contact details of provider: Postal: Review of Economic Dynamics Academic Press Editorial Office 525 "B" Street, Suite 1900 San Diego, CA 92101 Fax: 1-860-486-4463 Email: Web page: http://www.EconomicDynamics.org/review.htm More information through EDIRC
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Keywords: Adaptive Learning ; Monetary Policy ; Fiscal Policy ; Zero Interest Rate Lower Bound ; Indeterminacy ; Other versions of this item:
Paper George W. Evans & Seppo Honkapohja, 2003.
"Policy interaction, expectations, and the liquidity trap ,"
Working Paper
2003-16, Federal Reserve Bank of Atlanta.
George W. Evans & Seppo Honkapohja, 2003.
"Policy Interaction, Expectations and the Liquidity Trap ,"
University of Oregon Economics Department Working Papers
2003-33, University of Oregon Economics Department, revised 06 Jul 2004.
[Downloadable!] George W. Evans & Seppo Honkapohja, 2004.
"Policy interaction, expectations and the liquidity trap ,"
Macroeconomics
0404033, EconWPA.
[Downloadable!] Evans, George W. & Honkapohja , Seppo, 2003.
"Policy interaction, expectations and the liquidity trap ,"
Research Discussion Papers
22/2003, Bank of Finland.
[Downloadable!] Find related papers by JEL classification: E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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"Escapist policy rules ,"
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Benhabib, Jess & Schmitt-Grohé, Stephanie & Uribe, Martín, 2001.
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Full
references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Adam, Klaus & Billi, Roberto M, 2003.
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Working Paper Series
377, European Central Bank.
[Downloadable!] Roberto M. Billi & Klaus Adam, 2004.
"Optimal Monetary Policy under Commitment with a Zero Bound on Nominal Interest Rates ,"
Computing in Economics and Finance 2004
67, Society for Computational Economics.
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"Optimal monetary policy under commitment with a zero bound on nominal interest rates ,"
Research Working Paper
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CFS Working Paper Series
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Journal of Money, Credit and Banking ,
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Review ,
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George Evans & Eran Guse & Seppo Honkapohja, 2007.
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Kiel Working Papers
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Evans, G.W. & Guse, E. & Honkapohja, S, 2007.
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[Downloadable!] George W. Evans & Eran Guse & Seppo Honkapohja, 2007.
"Liquidity Traps, Learning and Stagnation ,"
University of Oregon Economics Department Working Papers
2007-9, University of Oregon Economics Department, revised 05 Jun 2007.
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"Liquidity Traps, Learning and Stagnation ,"
CEPR Discussion Papers
6355, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted) Evans, George W. & Guse, Eran & Honkapohja, Seppo, 2008.
"Liquidity traps, learning and stagnation ,"
European Economic Review ,
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[Downloadable!] (restricted) repec:bep:maccon:v:6:y:2006:i:1:p:1437-1437 is not listed on IDEAS
James Bullard & In-Koo Cho, 2003.
"Escapist policy rules ,"
Working Papers
2002-002, Federal Reserve Bank of St. Louis.
[Downloadable!]
Other versions:
James Bullard, & In-Koo Cho, 2003.
"Escapist Policy Rules ,"
CFS Working Paper Series
2003/38, Center for Financial Studies.
[Downloadable!] Bullard, James & Cho, In-Koo, 2005.
"Escapist policy rules ,"
Journal of Economic Dynamics and Control ,
Elsevier, vol. 29(11), pages 1841-1865, November.
[Downloadable!] (restricted) Evans, George W & Honkapohja, Seppo, 2008.
"Expectations, Learning and Monetary Policy: An Overview of Recent Rersearch ,"
CEPR Discussion Papers
6640, C.E.P.R. Discussion Papers.
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Other versions:
George Evans & Seppo Honkapohja, 2008.
" Expectations, Learning and Monetary Policy: An Overview of Recent Research ,"
CDMA Working Paper Series
0802, Centre for Dynamic Macroeconomic Analysis.
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"Expectations, Learning, And Monetary Policy: An Overview Of Recent Research ,"
Working Papers Central Bank of Chile
501, Central Bank of Chile.
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Research Discussion Papers
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Ragna Alstadheim & Dale W. Henderson, 2004.
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International Finance Discussion Papers
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Ragna Alstadheim & Dale Henderson, 2006.
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2006/03, Norges Bank.
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The B.E. Journal of Macroeconomics ,
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Staff Reports
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