The Liquidity Trap and Persistent Unemployment with Dynamic Optimizing Agents: Empirical Evidence

14 Pages Posted: 9 Dec 2004

See all articles by Yoshiyasu Ono

Yoshiyasu Ono

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

Kazuo Ogawa

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

Atsushi Yoshida

University of Tsukuba - Institute of Policy and Planning Sciences

Abstract

Standard money-in-utility dynamic models assume satiable liquidity preference, and thereby prove the existence of a full-employment steady state. In the same framework, it is known that under insatiable liquidity or wealth preference there is a case where a full-employment steady state does not exist. A liquidity trap then arises and unemployment persists in the steady state. Using both parametric and non-parametric methods, this paper empirically finds that insatiable liquidity/wealth preference is better supported. Thus, without assuming any permanent distortion, we can analyse an effective demand shortage in a dynamic optimization framework.

Suggested Citation

Ono, Yoshiyasu and Ogawa, Kazuo and Yoshida, Atsushi, The Liquidity Trap and Persistent Unemployment with Dynamic Optimizing Agents: Empirical Evidence. Japanese Economic Review, Vol. 55, No. 4, pp. 355-371, December 2004. Available at SSRN: https://ssrn.com/abstract=625424

Yoshiyasu Ono (Contact Author)

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

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

Kazuo Ogawa

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

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan
+81 6 6879 8570 (Phone)

Atsushi Yoshida

University of Tsukuba - Institute of Policy and Planning Sciences ( email )

Tennodai 1-1-1, Tsukuba
Japan

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