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Understanding Benign Liquidity Traps: The Case of Japan

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  • Stefan Homburg

Abstract

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 liquidity traps. Possible conclusions for Anglo-Saxon countries and eurozone members are also discussed.
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  • Stefan Homburg, 2017. "Understanding Benign Liquidity Traps: The Case of Japan," German Economic Review, Verein für Socialpolitik, vol. 18(3), pages 267-282, August.
    • Handle: RePEc:bla:germec:v:18:y:2017:i:3:p:267-282
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    File URL: http://hdl.handle.net/10.1111/geer.12105
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    1. Benign liquidity traps
      by Tyler Cowen in Marginal Revolution on 2015-07-10 09:01:17

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    Cited by:

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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