Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192880 
Year of Publication: 
2018
Series/Report no.: 
Working Paper No. 247
Publisher: 
University of Zurich, Department of Economics, Zurich
Abstract: 
I develop a new monetarist model to analyze why an economy can fall into a liquidity trap, and what the effects of unconventional monetary policy measures such as helicopter money and negative interest rates are under these circumstances. I find that liquidity traps can be caused by a decrease in the bonds-to-money ratio, by a decrease in productivity of capital, or by an increase in demand for consumption. The model shows that, while conventional monetary policy cannot control inflation in a liquidity trap, unconventional monetary policies allow the monetary authority to regain control over the inflation rate, and that an increase in the bonds-to-money ratio is the only welfare-improving policy.
Subjects: 
New monetarism
liquidity trap
helicopter money
negative interest rates
government debt
Ricardian equivalence
banking
JEL: 
E43
E52
E63
G21
H63
Document Type: 
Working Paper

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