Zero Nominal Interest Rates, Unemployment, Excess Reserves and Deflation in a Liquidity Trap

Ono, Yoshiyasu; Murota, Ryu-ichiro

doi:10.2139/ssrn.1433182

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Zero Nominal Interest Rates, Unemployment, Excess Reserves and Deflation in a Liquidity Trap

ISER Discussion Paper No. 748

31 Pages Posted: 13 Jul 2009

See all articles by Yoshiyasu Ono

Yoshiyasu Ono

Osaka University - Institute of Social and Economic Research (ISER)

Ryu-ichiro Murota

Kindai University

Date Written: July 13, 2009

Abstract

We present a dynamic and monetary model that consistently explains such various phenomena as unemployment, deflation, zero nominal interest rates and excess reserves held by commercial banks. These phenomena are commonly observed during the Great Depression in the United States, the recent long-run stagnation in Japan, and the worldwide financial crisis triggered by the US subprime loan problem of 2008. We show that an excessive liquidity preference leads to a liquidity trap and thereby generates the phenomena.

Keywords: Liquidity Trap, Zero Nominal Interest Rate, Persistent Unemployment, Excess Reserve, Deflation

JEL Classification: E12, E31, E41, E51

Suggested Citation: Suggested Citation

Ono, Yoshiyasu and Murota, Ryu-ichiro, Zero Nominal Interest Rates, Unemployment, Excess Reserves and Deflation in a Liquidity Trap (July 13, 2009). ISER Discussion Paper No. 748, Available at SSRN: https://ssrn.com/abstract=1433182 or http://dx.doi.org/10.2139/ssrn.1433182