TY - JOUR
T1 - Global liquidity trap
AU - Fujiwara, Ippei
AU - Nakajima, Tomoyuki
AU - Sudo, Nao
AU - Teranishi, Yuki
PY - 2013/11
Y1 - 2013/11
N2 - How should monetary policy respond to a "global liquidity trap," where the two countries may fall into a liquidity trap simultaneously? Using a two-country New Open Economy Macroeconomics model, we first characterize optimal monetary policy, and show that the optimal rate of inflation in one country is affected by whether or not the other country is in a liquidity trap. We next examine how well the optimal monetary policy is approximated by relatively simple monetary policy rules. The interest-rate rule targeting the producer price index performs well in this respect.
AB - How should monetary policy respond to a "global liquidity trap," where the two countries may fall into a liquidity trap simultaneously? Using a two-country New Open Economy Macroeconomics model, we first characterize optimal monetary policy, and show that the optimal rate of inflation in one country is affected by whether or not the other country is in a liquidity trap. We next examine how well the optimal monetary policy is approximated by relatively simple monetary policy rules. The interest-rate rule targeting the producer price index performs well in this respect.
KW - International spillover
KW - Monetary policy cooperation
KW - Two-country model
KW - Zero interest rate policy
UR - http://www.scopus.com/inward/record.url?scp=84888379553&partnerID=8YFLogxK
U2 - 10.1016/j.jmoneco.2013.08.004
DO - 10.1016/j.jmoneco.2013.08.004
M3 - Article
SN - 0304-3932
VL - 60
SP - 936
EP - 949
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
IS - 8
ER -