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Estimation of the liquidity trap using a panel threshold model

Author

Listed:
  • Fangping Peng
  • R. J. Cebula
  • M. Foley
  • Kai Zhan

Abstract

This empirical study investigates, unlike previous studies, the presence of a liquidity trap using firm-level data. The study focuses on the case of China. A panel threshold model is employed. The empirical estimation reveals that the interest elasticity of money demand declines as the interest rate falls, a finding indicating that China has not been in a liquidity trap.

Suggested Citation

  • Fangping Peng & R. J. Cebula & M. Foley & Kai Zhan, 2016. "Estimation of the liquidity trap using a panel threshold model," Applied Economics Letters, Taylor & Francis Journals, vol. 23(16), pages 1134-1137, November.
    • Handle: RePEc:taf:apeclt:v:23:y:2016:i:16:p:1134-1137
    DOI: 10.1080/13504851.2015.1137544
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    References listed on IDEAS

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    1. Orphanides, Athanasios, 2004. "Monetary policy in deflation: the liquidity trap in history and practice," The North American Journal of Economics and Finance, Elsevier, vol. 15(1), pages 101-124, March.
    2. Orphanides, Athanasios, 2004. "Erratum to "Monetary policy in deflation: the liquidity trap in history and practice" [North Am. J. Econ. Finance 15 (1) (2004) 101-124]," The North American Journal of Economics and Finance, Elsevier, vol. 15(2), pages 265-265, August.
    3. Sato, Kazuo, 2008. "The liquidity trap: Japan, 1996-2001 versus the United States, 1933-1940," Journal of Asian Economics, Elsevier, vol. 19(2), pages 155-169, April.
    4. Lotti, Francesca & Marcucci, Juri, 2007. "Revisiting the empirical evidence on firms' money demand," Journal of Economics and Business, Elsevier, vol. 59(1), pages 51-73.
    5. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
    6. Fernández-Villaverde, Jesús & Gordon, Grey & Guerrón-Quintana, Pablo & Rubio-Ramírez, Juan F., 2015. "Nonlinear adventures at the zero lower bound," Journal of Economic Dynamics and Control, Elsevier, vol. 57(C), pages 182-204.
    7. Bae, Youngsoo & Kakkar, Vikas & Ogaki, Masao, 2006. "Money Demand in Japan and Nonlinear Cointegration," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(6), pages 1659-1667, September.
    8. White, Kenneth J, 1972. "Estimation of the Liquidity Trap with a Generalized Functional Form," Econometrica, Econometric Society, vol. 40(1), pages 193-199, January.
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