Understanding Benign Liquidity Traps: The Case of Japan
Autor: Stefan Homburg
Nummer: 557, Jun 2015, pp. 18
JEL-Class: E31, E43, E52
Japan has been in a benign liquidity trap since 1990. In a benign liquidity trap, interest rates approach zero, prices decline, 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 Japanís performance and resolves puzzles associated with liquidity traps. Possible conclusions for Anglo-Saxon countries and eurozone members are also discussed.
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