Determinate liquidity traps
Tambakis, D. N.
Cambridge Working Papers in Economics
Faculty of Economics
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Tambakis, D. N. (2015). Determinate liquidity traps. https://doi.org/10.17863/CAM.5811
I study the long run determinacy tradeoff - recurrent episodes of passive monetary policy are (in)determinate if their expected duration is long (brief ) - when passive pol- icy is at the zero bound. On-going regime change implies qualitatively different shock transmission from the standard New Keynesian model. For U.S. baseline parameter values, I find temporary fiscal stimulus is effective, while adverse supply shocks can be expansionary if the central bank's active policy stance is weak and/or if the liquidity trap's average duration exceeds 3 quarters.
Zero bound, Monetary policy, Regime-switching, Determinacy
This record's DOI: https://doi.org/10.17863/CAM.5811
This record's URL: https://www.repository.cam.ac.uk/handle/1810/255346
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