Monetary Policy at the Zero Bound
The main conclusion of the paper is that â€“ even if bank lending to the private sector is falling (and destroying money balances) at a zero short-term interest rate â€“ the monetary authorities can always increase the quantity of money (broadly defined to include all bank deposits) without limit by means of debt market operations. Such operations are to be distinguished from more conventional money market operations. Assuming â€“ in line with standard theory â€“ that equilibrium nominal national income increases by the same percentage as the quantity of money, debt market operations are available at all times to pre-empt a downward debt-deflationary spiral.The paper differentiates debt market operations from money market operations, and a broad liquidity trap (in which increases in the quantity of money, broadly defined, do not reduce the long bond yield because of the infinite elasticity of non-banksâ€™ demand to hold money) from a narrow liquidity trap (in which increases in the monetary base do not boost the quantity of money, because banks behave as if their demand for base were infinitely elastic). Keynes analysed the broad liquidity trap in The General Theory.
Volume (Year): 11 (2010)
Issue (Month): 1 (January)
|Contact details of provider:|| |
When requesting a correction, please mention this item's handle: RePEc:wej:wldecn:403. 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: (Ed Jones)
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.