An increase in the ability to timely meet commitments which will be due in the near future is a prerequisite for the survival of banks. Hence, the correct and optimal management of liquidity is an important affair that banks should perform. The present study aimed mainly to test the management of asset-liability and liquidity trap in the Credit Institute for Development. The research is applied...

The economic situation in a wide range of economies in the wake of the crisis that began in 2007 is characterised by many as a liquidity trap. The original conceptualization of the liquidity trap was part of Keynes’s (1936) theory of liquidity preference. It referred to a situation where the monetary authorities could not reduce the nominal long-term interest rate any further by selling bonds b...

Japan has been in a benign liquidity trap since the 1990s. In a benign liquidity trap, interest rates approach zero and monetary policy is ineffective but output and employment perform decently. Such a pattern contradicts traditional macro theories. This paper introduces a monetary general equilibrium model that is compatible with Japan’s performance and resolves puzzles associated with liquidi...

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...

The Bernanke-Reinhart-Sack paper mostly focuses on alternative policies in a liquidity trap to affect expectations of future interest rates. But the problem in a liquidity trap is rather to raise private-sector expectations of the future price level. Increased expectations of the future price level are likely to be much more affective in reducing the real interest rate and stimulating the econo...

I n the last decade or two, central banks all over the world have been quite successful in achieving low and stable in ation. Average annual in ation in the industrialized countries has fallen below 2 percent. Average in ation has not been so low since the 1950s, as shown in Table 1. In emerging countries, in ation is now the lowest since the 1960s (International Monetary Fund, 2003b). Thes...

The paper shows that Liquidity Deflation, a liquidity-drainage mechanism associated with Safe Asset Shortage, helps to rationalize supply-side liquidity trap and involuntary unemployment under wage/price flexibility, especially in economies that suffered massive liquidity destruction, like advanced economies in the wake of the Lehman crisis. Moreover, Liquidity Deflation is shown to imply defla...

Any recession by definition is associated with an excessive liquidity preference. An ex ante excess supply of goods and services, i.e. the demand for goods and services falling short of the base output at the base prices corresponding to that output, which is what a recession is, must be associated with an ex ante excess demand for money at that output and prices. This is simply Walras’ Law. Th...

In standard solutions, the new-Keynesian model produces a deep recession with deflation in a liquidity trap. The model also makes unusual policy predictions: Useless government spending, technical regress, and capital destruction have large multipliers. These predictions become larger as prices become less sticky. I show that both data and policy predictions are strongly affected by equilibrium...