Wealth Effects, the Taylor Rule and the Liquidity Trap

32 Pages Posted: 14 May 2007

See all articles by Barbara Annicchiarico

Barbara Annicchiarico

University of Rome, Tor Vergata - Department of Economics and Finance; University of Rome Tor Vergata - Centre for International Studies on Economic Growth (CEIS)

Giancarlo Marini

University of Rome Tor Vergata - Faculty of Economics

Alessandro Piergallini

Tor Vergata University

Date Written: May 2007

Abstract

This paper analyzes the dynamic properties of the Taylor rule with the zero lower bound on the nominal interest rate in an optimizing monetary model with overlapping generations. The main result is that the presence of wealth effects is not sufficient to rule out the possibility of infinite equilibrium paths with decelerating inflation. In particular, the operation of wealth effects does not avoid the occurrence of liquidity traps when the central bank implements a Taylor-type interest-rate feed back rule.

Keywords: Wealth Effects,Taylor Rules, Liquidity Traps

JEL Classification: E31, E52

Suggested Citation

Annicchiarico, Barbara and Marini, Giancarlo and Piergallini, Alessandro, Wealth Effects, the Taylor Rule and the Liquidity Trap (May 2007). CEIS Working Paper No. 104. Available at SSRN: https://ssrn.com/abstract=986129 or http://dx.doi.org/10.2139/ssrn.986129

Barbara Annicchiarico (Contact Author)

University of Rome, Tor Vergata - Department of Economics and Finance ( email )

Rome, I-00133
Italy

University of Rome Tor Vergata - Centre for International Studies on Economic Growth (CEIS) ( email )

Via Columbia, 2
Rome, I-00133
Italy

Giancarlo Marini

University of Rome Tor Vergata - Faculty of Economics ( email )

Via Columbia n.2
Rome, 00100
Italy

Alessandro Piergallini

Tor Vergata University ( email )

Via Columbia 2
Rome, Rome 00133
Italy
+390672595431 (Phone)
+39062020500 (Fax)

HOME PAGE: http://www.economia.uniroma2.it/piergallini

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