Policy Regime Change Against Chronic Deflation? Policy Option Under Long-Term Liquidity Trap

Liquidity Deflation and Liquidity Trap under Flexible Prices

I discuss some simple microfoundations for Liquidity Deflation, a concept put forward in Calvo (2016 a and b), which can give rise to liquidity trap conditions under perfectly flexible prices. Unlike in Keynes (1936), this is a Supply Side Liquidity Trap. Moreover, modeling the policy interest rate as the rate of return on money-like instruments à la Calvo and Végh (1995), denoted by i!, I show...

Monetary Policy and Japan ’ s Liquidity Trap

During the long economic slump in Japan, monetary policy in Japan has essentially consisted of a very low interest rate (since 1995), a zero interest rate (since 1999), and quantitative easing (since 2001). The intention seems to have been to lower expectations of future interest rates. But the problem in a liquidity trap (when the zero lower bound on the central bank's instrument rate is stric...

Policy Interaction , Expectations and the Liquidity Trap ∗

We consider inflation and debt dynamics under a global interest rate rule when private agents forecast using adaptive learning. Given the zero lower bound on interest rates, active interest rate rules are known to imply the existence of a second, low-inflation steady state. Under learning the economy can slip below this low-inflation steady state and be driven to an even lower inflation floor s...

The Current Deflation in China: Causes and Policy Option

The Chinese economy showed the sign of overheating in the spring of 1993. As a countermeasure of overheating, the Chinese government began to implement a retrenchment program in July 1993 and the program lasted until 1997. The economic growth rate did not drop sharply because the program resulted in a soft-landing. The economic growth rate began a gradual slowdown in 1995 but has been maintaine...

Modeling Long - Term Policy Under Uncertainty