Inside money, investment, and unconventional monetary policy
In this paper I build a new monetarist model that includes inside money and investment to analyze why an economy can fall into a liquidity trap, and what the effects of unconventional monetary policy measures like helicopter money and negative interest rates are under these circumstances. I find that the liquidity trap can be caused by a scarcity of savings instruments, by insufficient investment opportunities, by too much supply of bank deposits or by a combination of any of these reasons. I also find that unconventional monetary policies can get an economy out of a liquidity trap, but at a welfare cost, while issuing more government debt can do the same and also improve welfare.
|Date of creation:||Mar 2017|
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- John Moore & Nobuhiro Kiyotaki, 2008.
"Liquidity, Business Cycles, and Monetary Policy,"
2008 Meeting Papers
35, Society for Economic Dynamics.
- Nobuhiro Kiyotaki & John Moore, 2012. "Liquidity, Business Cycles and Monetary Policy," ESE Discussion Papers 113, Edinburgh School of Economics, University of Edinburgh.
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- Galí, Jordi, 2014. "The Effects of a Money-Financed Fiscal Stimulus," CEPR Discussion Papers 10165, C.E.P.R. Discussion Papers.
- Gauti B. Eggertsson & Michael Woodford, 2003. "The Zero Bound on Interest Rates and Optimal Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 139-235.
- Gauti B. Eggertsson & Paul Krugman, 2012. "Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1469-1513.
- Stephen D. Williamson, 2012. "Liquidity, Monetary Policy, and the Financial Crisis: A New Monetarist Approach," American Economic Review, American Economic Association, vol. 102(6), pages 2570-2605, October.
- Williamson, Stephen D., 2016. "Scarce collateral, the term premium, and quantitative easing," Journal of Economic Theory, Elsevier, vol. 164(C), pages 136-165.
- Williamson, Stephen D., 2014. "Scarce collateral, the term premium, and quantitative easing," Working Papers 2014-8, Federal Reserve Bank of St. Louis.
- Jordi Galí, 2014. "The Effects of a Money-Financed Fiscal Stimulus," Working Papers 786, Barcelona Graduate School of Economics. Full references (including those not matched with items on IDEAS)
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