The Non-Zero Lower Bound Lending Rate and the Liquidity Trap
AbstractMost studies of the liquidity trap emphasize the zero bound benchmark policy rate. This paper integrates a non-zero lower bound lending rate and the traditional zero bound policy rate in a dynamic structural macroeconomic model that takes into consideration aggregate bank liquidity preference as a financial friction. The approach allows for analyzing the dynamic effects of quantitative easing and an interest rate policy. Once the non-zero lower limit is reached, increasing the benchmark policy rate marginally can have a positive effect on output. Expanding quantitative easing at the non-zero lower limit results in a negative effect on output. Increasing marginally the zero bound policy rate is better at stimulating inflation than quantitative easing. However, excessive tightening in a normal regime would result in the opposite effect.
Download InfoIf 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.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 42030.
Date of creation: 01 Sep 2011
Date of revision: 01 May 2012
liquidity trap; quantitative easing; financial friction; excess liquidity;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- E00 - Macroeconomics and Monetary Economics - - General - - - General
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
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.:
- Ryu-ichiro Murota & Yoshiyasu Ono, 2009.
"Zero Nominal Interest Rates, Unemployment, Excess Reserves and Deflation in a Liquidity Trap,"
ISER Discussion Paper, Institute of Social and Economic Research, Osaka University
0748, Institute of Social and Economic Research, Osaka University.
- Ryu‐ichiro Murota & Yoshiyasu Ono, 2012. "Zero Nominal Interest Rates, Unemployment, Excess Reserves And Deflation In A Liquidity Trap," Metroeconomica, Wiley Blackwell, Wiley Blackwell, vol. 63(2), pages 335-357, 05.
- Charles Goodhart & Boris Hofmann, 2003.
"The IS Curve and the Transmission of Monetary Policy: Is there a Puzzle?,"
FMG Special Papers, Financial Markets Group
sp150, Financial Markets Group.
- Charles Goodhart & Boris Hofmann, 2005. "The IS curve and the transmission of monetary policy: is there a puzzle?," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(1), pages 29-36.
- Goodhart, Charles A. E. & Hofmann, Boris, 2003. "The IS curve and the transmission of monetary policy: Is there a puzzle?," ZEI Working Papers B 13-2003, ZEI - Center for European Integration Studies, University of Bonn.
- Kazuo Ogawa, 2007. "Why Commercial Banks Held Excess Reserves: The Japanese Experience of the Late 1990s," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 39(1), pages 241-257, 02.
- Xavier Freixas & Jean-Charles Rochet, 2008. "Microeconomics of Banking, 2nd Edition," MIT Press Books, The MIT Press, The MIT Press, edition 2, volume 1, number 0262062704, December.
- Yoshiyasu Ono, 2011.
"The Keynesian Multiplier Effect Reconsidered,"
Journal of Money, Credit and Banking, Blackwell Publishing,
Blackwell Publishing, vol. 43(4), pages 787-794, 06.
- Yoshiyasu Ono, 2009. "The Keynesian Multiplier Effect Reconsidered," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0730, Institute of Social and Economic Research, Osaka University.
- Dani Rodrik & Arvind Subramanian, 2009. "Why Did Financial Globalization Disappoint?," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 112-138, April.
- Tarron Khemraj, 2007. "What does excess bank liquidity say about the loan market in Less Developed Countries?," Working Papers, United Nations, Department of Economics and Social Affairs 60, United Nations, Department of Economics and Social Affairs.
- Todd Keister & James J. McAndrews, 2009.
"Why are banks holding so many excess reserves?,"
Current Issues in Economics and Finance, Federal Reserve Bank of New York,
Federal Reserve Bank of New York, vol. 15(Dec).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.