Monetary policy under a liquidity trap: Simulation evidence for the euro area |
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| Affiliation: | 1. Swiss National Bank, Switzerland;2. Monetary and Economic Department, Bank for International Settlements, Switzerland;3. University of Tokyo, Japan;1. World Bank, USA;2. World Bank, BREAD, CEPR and IZA, USA;1. School of Economics, La Trobe University, Melbourne, VIC 3086, Australia;2. Keio Economic Observatory, Keio University, Tokyo, Japan;3. Graduate School of Economics, Tohoku University, Sendai, Japan;1. The University of Tokyo, Institute of Social Science, 7-3-1 Hongo, Bunkyo-ku, Tokyo 113-0033, Japan;2. Waseda University, Faculty of Education and Integrated Arts and Sciences, 1-6-1 Nishiwaseda, Shinjuku-ku, Tokyo 169-8050, Japan;3. Keio University, Faculty of Economics, 2-15-45 Mita, Minato-ku, Tokyo 108-8345, Japan |
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| Abstract: | In this paper, we analyze the conduct of monetary policy under a zero nominal interest-rate bound (hereafter ZIB) in a model economy of the euro area, namely that of the Area Wide Model. The aggregate euro-area economy is modeled to have relatively sluggish adjustment properties and a private sector with mainly backward-looking expectations. For a given ZIB benchmark, we consider variations in the monetary-policy reaction function to minimize the macro-economic consequences of such a deflationary regime. We rank the effectiveness of these remedial policies using a number of metrics and relate our results to features and properties of the model economy. J. Japanese Int. Economies 20 (3) (2006) 338–363. |
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