Zero Nominal Interest Rates, Unemployment, Excess Reserves and Deflation in a Liquidity Trap
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.
|Date of creation:||Jul 2009|
|Date of revision:|
|Contact details of provider:|| Postal: 6-1 Mihogaoka, Ibaraki, Osaka 567-0047|
Web page: http://www.iser.osaka-u.ac.jp/index-e.html
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.:
- 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.
- 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.
- 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.
- Wataru Johdo, 2006. "Geographical Space And Effective Demand Under Stagnation," Australian Economic Papers, Wiley Blackwell, vol. 45(4), pages 286-298, December.
- James A. Wilcox, 1984. "Excess Reserves in the Great Depression," NBER Working Papers 1374, National Bureau of Economic Research, Inc.
- 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.
- Schmitt-Grohe, Stephanie & Uribe, Martin, 2007.
"Optimal simple and implementable monetary and fiscal rules,"
Journal of Monetary Economics,
Elsevier, vol. 54(6), pages 1702-1725, September.
- Stephanie Schmitt-Grohé & Martín Uribe, 2007. "Optimal simple and implementable monetary and fiscal rules," FRB Atlanta Working Paper 2007-24, Federal Reserve Bank of Atlanta.
- Schmitt-Grohé, Stephanie & Uribe, Martín, 2004. "Optimal Simple and Implementable Monetary and Fiscal Rules," CEPR Discussion Papers 4334, C.E.P.R. Discussion Papers.
- Stephanie Schmitt-Grohe & Martin Uribe, 2004. "Optimal Simple and Implementable Monetary and Fiscal Rules," NBER Working Papers 10253, National Bureau of Economic Research, Inc.
- Michael Woodford, 2001.
"Fiscal Requirements for Price Stability,"
NBER Working Papers
8072, National Bureau of Economic Research, Inc.
- Athanasios Orphanides, 2004.
"Monetary policy in deflation: the liquidity trap in history and practice,"
Finance and Economics Discussion Series
2004-01, Board of Governors of the Federal Reserve System (U.S.).
- 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.
- repec:ebl:ecbull:v:5:y:2004:i:1:p:1-13 is not listed on IDEAS
- 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.
- 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.
- 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.
- Carl E. Walsh, 1984. "Optimal Taxation by the Monetary Authority," NBER Working Papers 1375, National Bureau of Economic Research, Inc.
- 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.
- Gregor Smith, 2006.
"Japan's Phillips Curve Looks Like Japan,"
1083, Queen's University, Department of Economics.
- 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.
- Johdo, Wataru, 2008. "Is Openness Good for Stagnation?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 23, pages 24-41.
- 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.
- 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.
- 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.
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 references are entirely missing, you can add them using this form.