Leverage and the Financial Accelerator in a Liquidity Trap
2011 ◽
Vol 101
(3)
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pp. 413-416
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Keyword(s):
We show that the financial accelerator may be very large in a liquidity trap. We study a sticky price model with real estate and a financial friction specified as a collateral constraint. Expectations can lead the economy to a self-fulfilling liquidity trap equilibrium where the lower bound on the nominal interest rate binds. We model these equilibria as stochastic sunspots. As in the Great Depression, a liquidity trap entails house price depreciation and potentially large output losses. Higher leverage implies much larger output losses but at the same time rules out the existence of short-lived liquidity traps.
2018 ◽
Vol 40
(3)
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pp. 301-334
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Keyword(s):
2018 ◽
Keyword(s):
2012 ◽
Vol 127
(3)
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pp. 1469-1513
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Keyword(s):
2020 ◽
Vol 32
(1)
◽
pp. 99-120
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2004 ◽
Vol 1
(3)
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pp. 193-201
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Keyword(s):