Global liquidity trap
By: Ippei Fujiwara ... [et al.].
Contributors: National Bureau of Economic Research
Series: NBER working paper series -- working paper 16867; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 16867.
Publisher: National Bureau of Economic Research
Published: 2011
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] /
Description: "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"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 5/26/2011.

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.