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Inside Money, Investment, and Unconventional Monetary Policy

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  • Lukas Altermatt

    (University of Wisconsin-Madison)

Abstract

I develop a new monetarist model to analyze why an economy can fall into a liquidity trap, and what the effects of unconventional monetary policy measures such as helicopter money and negative interest rates are under these circumstances. I find that liquidity traps can be caused by a decrease in the bonds-to-money ratio, by a decrease in productivity of capital, or by an increase in demand for consumption. The model shows that, while conventional monetary policy cannot control inflation in a liquidity trap, unconventional monetary policies allow the monetary authority to regain control over the inflation rate, and that an increase in the bonds-to-money ratio is the only welfare-improving policy.

Suggested Citation

  • Lukas Altermatt, 2019. "Inside Money, Investment, and Unconventional Monetary Policy," 2019 Meeting Papers 470, Society for Economic Dynamics.
  • Handle: RePEc:red:sed019:470
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Inside Money, Investment, and Unconventional Monetary Policy
      by Christian Zimmermann in NEP-DGE blog on 2019-10-25 22:10:28

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    Cited by:

    1. Athanasios Geromichalos & Lucas Herrenbrueck, . "The Liquidity-Augmented Model of Macroeconomic Aggregates: A New Monetarist DSGE Approach," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
    2. Hannes Draack, 2018. "Monetary Policy with Imperfect Signals: The Target Problem in a New Monetarist Approach," ECON - Working Papers 296, Department of Economics - University of Zurich.
    3. Altermatt, Lukas, 2019. "Savings, asset scarcity, and monetary policy," Journal of Economic Theory, Elsevier, vol. 182(C), pages 329-359.
    4. Athanasios Geromichalos & Lucas Herrenbrueck, 2017. "The Liquidity-Augmented Model of Macroeconomic Aggregates," Discussion Papers dp17-16, Department of Economics, Simon Fraser University.
    5. Lukas Altermatt & Christian Wipf, 2020. "Liquidity, the Mundell-Tobin Effect, and the Friedman Rule," Diskussionsschriften dp2013, Universitaet Bern, Departement Volkswirtschaft.
    6. Lukas Altermatt, 2019. "Bank lending, financial frictions, and inside money creation," ECON - Working Papers 325, Department of Economics - University of Zurich.
    7. van Buggenum, Hugo, 2021. "Risk, Inside Money, and the Real Economy," Other publications TiSEM daabe114-81fa-44fc-aafd-b, Tilburg University, School of Economics and Management.
    8. Altermatt, Lukas & Wang, Zijian, 2021. "Oligopoly Banking, Risky Investment, and Monetary Policy," Economics Discussion Papers 30728, University of Essex, Department of Economics.
    9. van Buggenum, Hugo, 2021. "Risk, Inside Money, and the Real Economy," Discussion Paper 2021-020, Tilburg University, Center for Economic Research.

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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary 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
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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