Expectations-driven liquidity traps implications for monetary and fiscal policy by Taisuke Nakata and Sebastian Schmidt
By: Nakata, Taisuke
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Contributor(s): Schmidt, Sebastian.
Material type: 
ArticleSubject(s): POLITICA MONETARIA | POLITICA FISCAL | PENSAMIENTO ECONOMICO | MICROECONOMIA | LIQUIDEZ | INFLACION | GASTO PUBLICO | ESTADOS UNIDOS
In:
American Economic Journal : Macroeconomics v. 14, n. 4, October 2022, p. 68-103Summary: We study optimal time-consistent monetary and fiscal policy in a New Keynesian model where occasional declines in agents' confidence give rise to persistent liquidity trap episodes. Insights from widely studied fundamental-driven liquidity traps are not a useful guide for enhancing welfare in this model. Raising the inflation target, appointing an inflation-conservative central banker, or allowing for the use of government spending as an additional stabilization tool can exacerbate deflationary pressures and demand deficiencies during the liquidity trap episodes. However, appointing a policy-maker who is sufficiently less concerned with government spending stabilization than society eliminates expectations-driven liquidity traps.
| Item type | Current location | Home library | Call number | Status | Date due | Barcode |
|---|---|---|---|---|---|---|
| Artículos | IEF | IEF | OP 2137/2022/4-1 (Browse shelf) | Available | OP 2137/2022/4-1 |
Resumen
Bibliografía
We study optimal time-consistent monetary and fiscal policy in a New Keynesian model where occasional declines in agents' confidence give rise to persistent liquidity trap episodes. Insights from widely studied fundamental-driven liquidity traps are not a useful guide for enhancing welfare in this model. Raising the inflation target, appointing an inflation-conservative central banker, or allowing for the use of government spending as an additional stabilization tool can exacerbate deflationary pressures and demand deficiencies during the liquidity trap episodes. However, appointing a policy-maker who is sufficiently less concerned with government spending stabilization than society eliminates expectations-driven liquidity traps.
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