Understanding Benign Liquidity Traps: The Case of Japan. Issue 3 (27th May 2016)

• Record Type: Journal Article
• Authors: Homburg, Stefan
• Is Part Of: German economic review. Volume 18:Issue 3(2017:Aug.)
• Page Start: 267
• Page End: 282
• Publication Date: 2016-05-27
• Subjects: Liquidity trap -- Japan -- interest rate determination -- monetary policy -- quantitative easing -- forward guidance -- dynamic general equilibrium -- secular stagnation; Economics -- Periodicals; 330
• DOI: 10.1111/geer.12105
• Languages: English
• ISSNs: 1465-6485

Abstract

Abstract: Japan has been in a benign liquidity trap since the 1990s. In a benign liquidity trap, interest rates approach zero 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.