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Economic confidence, negative interest rates, and liquidity: Towards Keynesianism 2.0

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  • van Suntum, Ulrich

Abstract

A model is developed which explains deep recessions like the recent crisis by a lack of economic confidence, going along with a high liquidity preference of both private households and the private banking system. Thus the paper argues for a new form of Keynesian policy, which rests on monetary rather than fiscal policy. In this approach, instead of borrowing in order to create a substitute demand, the state creates additional credit in order to restore private investment. While this might imply temporarily negative central bank interest rates, it does not require direct interventions in the private capital market by either the central bank or the government. It is argued that such an approach is both cheaper and more effective than the traditional deficit spending policy is.

Suggested Citation

  • van Suntum, Ulrich, 2009. "Economic confidence, negative interest rates, and liquidity: Towards Keynesianism 2.0," CAWM Discussion Papers 24, University of Münster, Münster Center for Economic Policy (MEP).
  • Handle: RePEc:zbw:cawmdp:24
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    Cited by:

    1. Wenzlaff, Ferdinand & Kimmich, Christian & Koudela, Thomas & Richters, Oliver & Freydorf, Christoph & Schuster, Ludwig, 2012. "Wachstumszwang in der Geldwirtschaft? Theoretische Erwägungen," EconStor Research Reports 237053, ZBW - Leibniz Information Centre for Economics.
    2. Freydorf, Christoph & Kimmich, Christian & Koudela, Thomas & Schuster, Ludwig & Wenzlaff, Ferdinand, 2012. "Wachstumszwänge in der Geldwirtschaft. Zwischenbericht der Wissenschaftlichen Arbeitsgruppe nachhaltiges Geld," EconStor Preprints 142471, ZBW - Leibniz Information Centre for Economics.

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