Advanced Search
MyIDEAS: Login to save this paper or follow this series

Price Level Dynamics in a Liquidity Trap

Contents:

Author Info

  • Tsutomu Watanabe
  • Mitsuru Iwamura
Registered author(s):

    Abstract

    This paper studies the dynamic behavior of the general price level when the natural rate of interest declines substantially. Particular attention is paid to two constraints: the non-negativity constraint of nominal interest rates, and the government's intertemporal budget constraint. In a normal situation, nominal bond prices rise in response to the shock, which restores equilibrium. However, if the non-negativity constraint is binding, nominal bond prices cannot rise sufficiently. Equilibrium can then be restored only by a sufficient fall in the current price level. The required fall is greater when the maturity of government debt is shorter. To avoid deflation, the government must coordinate with the central bank by committing itself to reducing the current and future primary surplus.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.rieti.go.jp/jp/publications/dp/03e002.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 03002.

    as in new window
    Length: 37 pages
    Date of creation: Jan 2003
    Date of revision:
    Handle: RePEc:eti:dpaper:03002

    Contact details of provider:
    Postal: 11th floor, Annex, Ministry of Economy, Trade and Industry (METI) 1-3-1, Kasumigaseki Chiyoda-ku, Tokyo, 100-8901
    Phone: +81-3-3501-1363
    Fax: +81-3-3501-8577
    Email:
    Web page: http://www.rieti.go.jp/
    More information through EDIRC

    Related research

    Keywords:

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eti:dpaper:03002. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (NUKATANI Sorahiko).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.