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Determinate liquidity traps

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  • Tambakis, Demosthenes N.

Abstract

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 policy is at the zero bound. On-going regime change implies qualitatively different shock transmission from the standard New Keynesian model. For US 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.

Suggested Citation

  • Tambakis, Demosthenes N., 2015. "Determinate liquidity traps," Economics Letters, Elsevier, vol. 135(C), pages 126-132.
    • Handle: RePEc:eee:ecolet:v:135:y:2015:i:c:p:126-132
    DOI: 10.1016/j.econlet.2015.08.004
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    7. Tambakis, Demosthenes N., 2014. "On the risk of long-run deflation," Economics Letters, Elsevier, vol. 122(2), pages 176-181.
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    1. Ignacio Lozano-Espitia & Fernando Arias-Rodríguez & Jesus Bejarano & Andres Gonzalez & Clark Granger-Castaño & Franz Hamann & Yurany Hernández-Turca & Juan Manuel Julio-Román & Martha López & Juan C. , 2019. "La política fiscal y la estabilización macroeconómica en Colombia," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, issue 90, pages 1-60, April.

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    More about this item

    Keywords

    Zero bound; Monetary policy; Regime-switching; Determinacy;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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