Global Liquidity Trap / Ippei Fujiwara, Tomoyuki Nakajima, Nao Sudo, Yuki Teranishi.

By:

Fujiwara, Ippei

Contributor(s):

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w16867.Publication details: Cambridge, Mass. National Bureau of Economic Research 2011.Description: 1 online resource: illustrations (black and white)Subject(s):

Online resources:

Available additional physical forms:

Hardcopy version available to institutional subscribers

Abstract: In this paper we consider a two-country New Open Economy Macroeconomics model, and analyze the optimal monetary policy when countries cooperate in the face of a "global liquidity trap" - i.e., a situation where the two countries are simultaneously caught in liquidity traps. Compared to the closed economy case, a notable feature of the optimal policy in the face of a global liquidity trap is its international dependence. Whether or not a country's nominal interest rate is hitting the zero bound affects the target inflation rate of the other country. The direction of the effect depends on whether goods produced in the two countries are Edgeworth complements or substitutes. We also compare several classes of simple interest-rate rules. Our finding is that targeting the price level yields higher welfare than targeting the inflation rate, and that it is desirable to let the policy rate of each country respond not only to its own price level and output gap, but also to those in the other country.

Tags from this library: No tags from this library for this title. Log in to add tags.

Average rating: 0.0 (0 votes)

Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w16867 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

Collection: Colección NBER Close shelf browser (Hides shelf browser)

Previous	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	Next
Previous	nber w16864 Spillovers, Linkages, and Productivity Growth in the US Economy, 1958 to 2007 /	nber w16865 From Natural Variation to Optimal Policy? The Lucas Critique Meets Peer Effects /	nber w16866 Spurring Job Creation in Response to Severe Recessions: Reconsidering Hiring Credits /	nber w16867 Global Liquidity Trap /	nber w16868 Does Aggregated Returns Disclosure Increase Portfolio Risk-Taking? /	nber w16869 Math or Science? Using Longitudinal Expectations Data to Examine the Process of Choosing a College Major /	nber w1687 A Reappraisal of Recent Tests of the Permanent Income Hypothesis /	Next

March 2011.

In this paper we consider a two-country New Open Economy Macroeconomics model, and analyze the optimal monetary policy when countries cooperate in the face of a "global liquidity trap" - i.e., a situation where the two countries are simultaneously caught in liquidity traps. Compared to the closed economy case, a notable feature of the optimal policy in the face of a global liquidity trap is its international dependence. Whether or not a country's nominal interest rate is hitting the zero bound affects the target inflation rate of the other country. The direction of the effect depends on whether goods produced in the two countries are Edgeworth complements or substitutes. We also compare several classes of simple interest-rate rules. Our finding is that targeting the price level yields higher welfare than targeting the inflation rate, and that it is desirable to let the policy rate of each country respond not only to its own price level and output gap, but also to those in the other country.