Expectations, Taylor Rules and Liquidity Traps
DOI:
https://doi.org/10.6000/1929-7092.2017.06.17Keywords:
Liquidity traps, The zero lower bound, Equilibrium selection, Taylor rulesAbstract
This paper includes three equilibrium paths (Christiano et al. 2011; Werning 2012; Cochrane 2016) that model liquidity traps in a unified framework with expectations of duration of the zero lower bound and expectations of a Taylor-type rule outside of the trap, and finds that their appearance depends on these expectations. Other than that, Werning (2012)'s and Cochrane (2016)'s equilibrium paths require one more strong assumption and are thus arguably harder to observe in reality although Cochrane (2016)'s equilibrium path fits the recent data better.
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https://doi.org/10.1111/jmcb.12141
Christiano, Lawrence, Martin Eichenbaum, and Sergio Rebelo. 2011. ""When Is the Government Spending Multiplier Large?"" Journal of Political Economy vol. 119(1): 78-121.
https://doi.org/10.1086/659312
Cochrane, John H. 2011. “Determinacy and Identification with Taylor Rules.” Journal of Political Economy vol. 119 (3): 565-615.
https://doi.org/10.1086/660817
Cochrane, John H. 2016. “The New-Keynesian Liquidity Trap.” URL http://faculty.chicagobooth. edu/john.cochrane/research/papers/zero_bound_elsarticle-harv.pdf. Manuscript.
Eggertsson, Gauti B. 2011. ""What Fiscal Policy is Effective at Zero Interest Rates?"" NBER Macroeconomics Annual vol. 25: 59-112.
https://doi.org/10.1086/657529
Eggertsson, Gauti B. 2012. ""Was the New Deal Contractionary?"" American Economic Review, American Economic Association vol. 102(1): 524-55.
https://doi.org/10.1257/aer.102.1.524
Eggertsson G., A. Ferrero, and A. Raffo. 2014. ""Can structural reforms help Europe?"" Journal of Monetary Economics vol. 61(C): 2-22.
https://doi.org/10.1016/j.jmoneco.2013.11.006
Kiley, Michael T. 2016. ""Policy Paradoxes in the New Keynesian Model."" Review of Economic Dynamics vol. 21: 1-16.
https://doi.org/10.1016/j.red.2016.03.002
Negro, Marco Del, Marc Giannoni, and Christina Patterson. 2015. ""The Forward Guidance Puzzle."" Manuscript.
Wieland, Johannes. 2014. ""Are Negative Supply Shocks Expansionary at the Zero Lower Bound? "" Manuscript.
Werning, I. 2012. ""Managing a liquidity trap: Monetary and fiscal policy."" Manuscript.
Woodford, Michael. 2003. Interest and prices. Princeton N. J.: Princeton University Press.
Woodford, Michael. 2011. ""Simple Analytics of the Government Expenditure Multiplier."" American Economic Journal: Macroeconomics vol. 3(1): 1-35.
https://doi.org/10.1257/mac.3.1.1
Woodford, Michael. 2012. ""Methods of Policy Accommodation at the Interest-Rate Lower Bound."" Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City 185-288
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Published
2017-06-05
How to Cite
Ji, Y. (2017). Expectations, Taylor Rules and Liquidity Traps. Journal of Reviews on Global Economics, 6, 193–197. https://doi.org/10.6000/1929-7092.2017.06.17
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Special Issue - Monetary Policy in a Post-Crisis World: Experiences and Practices
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