TY  - BOOK
AU  - Fujiwara,Ippei
AU  - Nakajima,Tomoyuki
AU  - Sudo,Nao
AU  - Teranishi,Yuki
ED  - National Bureau of Economic Research.
TI  - Global Liquidity Trap
T2  - NBER working paper series
PY  - 2011///
CY  - Cambridge, Mass.
PB  - National Bureau of Economic Research
N1  - March 2011; Hardcopy version available to institutional subscribers
N2  - 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
UR  - https://www.nber.org/papers/w16867
UR  - http://dx.doi.org/10.3386/w16867
ER  -