IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Zero Nominal Interest Rates, Unemployment, Excess Reserves and Deflation in a Liquidity Trap

  • Ryu-ichiro Murota
  • Yoshiyasu Ono

We present a dynamic and monetary model that consistently explains such various phenomena as unemployment, deflation, zero nominal interest rates and excess reserves held by commercial banks. These phenomena are commonly observed during the Great Depression in the United States, the recent long-run stagnation in Japan, and the worldwide financial crisis triggered by the US subprime loan problem of 2008. We show that an excessive liquidity preference leads to a liquidity trap and thereby generates the phenomena.

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:
Download Restriction: no

Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0748.

in new window

Date of creation: Jul 2009
Date of revision:
Handle: RePEc:dpr:wpaper:0748
Contact details of provider: Postal: 6-1 Mihogaoka, Ibaraki, Osaka 567-0047
Fax: 81-6-6879-8583
Web page:

More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Carl E. Walsh, 1984. "Optimal Taxation by the Monetary Authority," NBER Working Papers 1375, National Bureau of Economic Research, Inc.
  2. Paul R. Krugman, 1998. "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 137-206.
  3. Johdo, Wataru & Hashimoto, Ken-ichi, 2009. "International relocation, the real exchange rate and effective demand," Japan and the World Economy, Elsevier, vol. 21(1), pages 39-54, January.
  4. Gregor Smith, 2006. "Japan's Phillips Curve Looks Like Japan," Working Papers 1083, Queen's University, Department of Economics.
  5. Orphanides, Athanasios, 2004. "Monetary policy in deflation: the liquidity trap in history and practice," The North American Journal of Economics and Finance, Elsevier, vol. 15(1), pages 101-124, March.
  6. Kazuo Ogawa, 2004. "Why Commercial Banks Held Excess Reserves: The Japanese Experience of the Late '90s," ISER Discussion Paper 0625, Institute of Social and Economic Research, Osaka University.
  7. Wataru Johdo, 2006. "Geographical Space And Effective Demand Under Stagnation," Australian Economic Papers, Wiley Blackwell, vol. 45(4), pages 286-298, December.
  8. repec:ebl:ecbull:v:5:y:2004:i:1:p:1-13 is not listed on IDEAS
  9. Stephanie Schmitt-Grohe & Martin Uribe, 2004. "Optimal Simple and Implementable Monetary and Fiscal Rules," NBER Working Papers 10253, National Bureau of Economic Research, Inc.
  10. Yoshiyasu Ono, 2006. "International Asymmetry In Business Activity And Appreciation Of A Stagnant Country'S Currency," The Japanese Economic Review, Japanese Economic Association, vol. 57(1), pages 101-120.
  11. Ono, Yoshiyasu, 2001. "A Reinterpretation of Chapter 17 of Keynes's General Theory: Effective Demand Shortage under Dynamic Optimization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(1), pages 207-36, February.
  12. Woodford, Michael, 2001. "Fiscal Requirements for Price Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 669-728, August.
  13. David C. Wheelock, 1992. "Monetary policy in the Great Depression: what the Fed did and why," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 3-28.
  14. Alejandro Rodríguez-Arana, 2007. "Inflation And The Public Deficit When The Utility Of Money Is Insatiable," The Japanese Economic Review, Japanese Economic Association, vol. 58(2), pages 238-254.
  15. James A. Wilcox, 1984. "Excess Reserves in the Great Depression," NBER Working Papers 1374, National Bureau of Economic Research, Inc.
  16. Fujiki, Hiroshi & Okina, Kunio & Shiratsuka, Shigenori, 2001. "Monetary Policy under Zero Interest Rate: Viewpoints of Central Bank Economists," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(1), pages 89-130, February.
  17. Wataru Johdo, 2008. "Production Subsidy As A Macroeconomic Policy In A Stagnation Economy," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 53(02), pages 317-333.
  18. Johdo, Wataru, 2008. "Is Openness Good for Stagnation?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 23, pages 24-41.
  19. Simonsen, Mario Henrique & Cysne, Rubens Penha, 2001. "Welfare Costs of Inflation and Interest-Bearing Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(1), pages 90-100, February.
  20. Daisuke Matsuzaki, 2003. "The Effects of a Consumption Tax on Effective Demand under Stagnation," The Japanese Economic Review, Japanese Economic Association, vol. 54(1), pages 101-118.
  21. Jones, Barry & Asaftei, Gabriel & Wang, Lian, 2004. "Welfare Cost Of Inflation In A General Equilibrium Model With Currency And Interest-Bearing Deposits," Macroeconomic Dynamics, Cambridge University Press, vol. 8(04), pages 493-517, September.
Full references (including those not matched with items on IDEAS)

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

When requesting a correction, please mention this item's handle: RePEc:dpr:wpaper:0748. 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: (Fumiko Matsumoto)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.