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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

    as
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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

    Citations

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    Cited by:

    1. Athanasios Geromichalos & Lucas Herrenbrueck, 2022. "The Liquidity-Augmented Model of Macroeconomic Aggregates: A New Monetarist DSGE Approach," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 45, pages 134-167, July.
    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. 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.
    5. Altermatt, Lukas & Wang, Zijian, 2021. "Oligopoly Banking, Risky Investment, and Monetary Policy," Economics Discussion Papers 30728, University of Essex, Department of Economics.
    6. Athanasios Geromichalos & Lucas Herrenbrueck, 2017. "The Liquidity-Augmented Model of Macroeconomic Aggregates," Discussion Papers dp17-16, Department of Economics, Simon Fraser University.
    7. van Buggenum, Hugo, 2021. "Risk, Inside Money, and the Real Economy," Discussion Paper 2021-020, Tilburg University, Center for Economic Research.
    8. Lukas Altermatt & Christian Wipf, 2020. "Liquidity, the Mundell-Tobin Effect, and the Friedman Rule," Diskussionsschriften dp2013, Universitaet Bern, Departement Volkswirtschaft.
    9. Lukas Altermatt, 2019. "Bank lending, financial frictions, and inside money creation," ECON - Working Papers 325, Department of Economics - University of Zurich.

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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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