Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/84866
Authors: 
Barens, Ingo
Year of Publication: 
2011
Series/Report no.: 
Darmstadt Discussion Papers in Economics 208
Abstract: 
In the wake of the financial crisis of 2007-8 academic as well as non-academic interest in the economic thought of John Maynard Keynes was revived. The notion of a 'liquidity trap', interpreted as a zero bound of the (short-term) nominal rate of interest, is seen as one of Keynes's important and lasting contributions to economic theory and to the understanding of the potential problems of monetary policy.2 This view of the alleged connection between Keynes, the 'liquidity trap' and the zero bound of the rate of interest is especially prominent in the macroeconomic textbook of Olivier J. Blanchard (2009).3 Unfortunately, the account given there of a supposed connection between Keynes's analysis in his General Theory of Employment, Interest and Money and the zero bound of the rate of interest proves to be unsustainable. In what follows, it will be shown that Keynes did not invent the term 'liquidity trap', that he discussed an effective floor to the (long-term) rate of interest at a positive level and that the zero bound of the (short-term) rate of interest was well known to British economists before the publication of Keynes's General Theory of Employment, Interest and Money.
Document Type: 
Working Paper

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