Download This PaperGlobal Liquidity Trap
Journal of Monetary Economics, Vol. 60, No. 8, 2013
AJRC Working Papers 04/ 2013
33 Pages Posted: 26 Jul 2017
There are 2 versions of this paper
Date Written: May 2013
Abstract
How should monetary policy respond to a global liquidity trap, where the two countries may fall into a liquidity trap simultaneously? Using a two-country New Open Economy Macroeconomics model, we first characterise optimal monetary policy, and show that the optimal rate of inflation in one country is affected by whether or not the other country is in a liquidity trap. Next, we examine how well the optimal monetary policy is approximated by relatively simple monetary policy rules. The interest-rate rule targeting the producer price index performs very well in this respect.
Keywords: Zero Interest Rate Policy, Two-Country Model, International Spillover, Monetary Policy Coordination
JEL Classification: E52, E58, F41
Suggested Citation: Suggested Citation
Ippei Fujiwara (Contact Author)
Australian National University (ANU) - Crawford School of Public Policy ( email )
ANU College of Asia and the Pacific
J.G. Crawford Building #132 Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia