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Dealing with a liquidity trap when government debt matters

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  • Sebastian Schmidt

Abstract

The experience of the recent global financial crisis has drawn attention to the question of how the appropriate monetary and fiscal policy stance in a liquidity trap is affected by the need to preserve government debt sustainability. The article summarises recent research that addresses this question in the context of a standard New Keynesian model. JEL Classification: E31, E52, E62, E63, D11

Suggested Citation

  • Sebastian Schmidt, 2014. "Dealing with a liquidity trap when government debt matters," Research Bulletin, European Central Bank, vol. 21, pages 8-11.
  • Handle: RePEc:ecb:ecbrbu:2014:0021:2
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    File URL: http://www.ecb.europa.eu/pub/pdf/other/researchbulletin21en.pdf
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    References listed on IDEAS

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    1. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2014. "The International Dimension Of Productivity And Demand Shocks In The Us Economy," Journal of the European Economic Association, European Economic Association, vol. 12(1), pages 153-176, February.
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    4. Kempf, Hubert & von Thadden, Leopold, 2013. "When do cooperation and commitment matter in a monetary union?," Journal of International Economics, Elsevier, vol. 91(2), pages 252-262.
    5. Roberto A. Santis & Paolo Surico, 2013. "Bank lending and monetary transmission in the euro area," Economic Policy, CEPR;CES;MSH, vol. 28(75), pages 423-457, July.
    6. Stefano Corradin & José L. Fillat & Carles Vergara-Alert, 2014. "Optimal Portfolio Choice with Predictability in House Prices and Transaction Costs," Review of Financial Studies, Society for Financial Studies, vol. 27(3), pages 823-880.
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    8. Lombardo, Giovanni & Ravenna, Federico, 2014. "Openness and optimal monetary policy," Journal of International Economics, Elsevier, vol. 93(1), pages 153-172.
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    Cited by:

    1. Nakata, Taisuke, 2016. "Optimal fiscal and monetary policy with occasionally binding zero bound constraints," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 220-240.

    More about this item

    Keywords

    monetary policy; fiscal policy; deficit spending; discretion; zero nominal interest rate bound;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • 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; Treasury Policy
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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