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| Noritaka Kudoh |
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| ''A global analysis of liquidity effects, interest rate rules, and deflationary traps'' |
| ( 2009, Vol. 29 No.2 ) |
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| The prevailing models of liquidity traps suggest that a deflationary trap is a stable steady state in a multiple equilibria model. These models implicitly assume that the central bank accelerates the process of disinflation by following a Taylor rule even though there is a long run positive relationship between the nominal interest rate and inflation rate. This paper presents a reduced-form model that integrates liquidity effects into the analysis of interest rate rules to generalize the previous results about uniqueness, determinacy, and dynamic property of the economy. |
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| Keywords: Taylor rules, liquidity effects, liquidity traps, deflation. |
JEL: E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
E4 - Money and Interest Rates: General |
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| Manuscript Received : Apr 27 2009 | | Manuscript Accepted : Jun 28 2009 |
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