Discussion Paper, Wirtschaftswissenschaftliche Fakultät, Leibniz University of Hannover 557
Japan has been in a benign liquidity trap since 1990. In a benign liquidity trap, interest rates approach zero, prices decline, 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.
liquidity trap Japan interest rate determination monetary policy quantitative easing forward guidance dynamic general equilibrium secular stagnation