Self-fulfilling liquidity traps with money as a medium of exchange
نویسنده
چکیده
The current macroeconomic context of low aggregate demand and interest rates is worsened by the attempts to reduce debts, public and private, and a shift toward liquidity. This paper shows, in a model of equilibrium, that when private agents want to accumulate more liquidity, which is fixed in the aggregate, the fall of total employment generates a higher private demand for liquidity which is self-fulfilling. An increase of pessimism may be sufficient to set an economy on a path of unemployment with a search for liquidity, but a shift from pessimism to optimism may not be able to restore full-employment.
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