Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
967155 | Journal of Monetary Economics | 2013 | 14 Pages |
Abstract
How should monetary policy respond to a “global liquidity trap,” where the two countries may fall into a liquidity trap simultaneously? Using a two-country New Open Economy Macroeconomics model, we first characterize optimal monetary policy, and show that the optimal rate of inflation in one country is affected by whether or not the other country is in a liquidity trap. We next examine how well the optimal monetary policy is approximated by relatively simple monetary policy rules. The interest-rate rule targeting the producer price index performs well in this respect.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Ippei Fujiwara, Tomoyuki Nakajima, Nao Sudo, Yuki Teranishi,