Liquidity Traps and Jobless Recoveries

2017 ◽  
Vol 9 (1) ◽  
pp. 165-204 ◽  
Author(s):  
Stephanie Schmitt-Grohé ◽  
Martín Uribe
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Capital Accumulation ◽  
Extended Period ◽  
Nominal Wage ◽  
Jobless Recoveries ◽  
Jobless Growth ◽  
Nominal Interest Rates ◽  
Nominal Wage Rigidity ◽  
Feedback Rule

This paper proposes a model that explains the joint occurrence of liquidity traps and jobless growth recoveries. Its key elements are downward nominal wage rigidity, a Taylor-type interest rate feedback rule, the zero lower bound on nominal interest rates, and a confidence shock. Absent a change in policy, the model predicts that low inflation and high unemployment become chronic. With capital accumulation, the model predicts, in addition, an investment slump. The paper identifies a New Fisherian effect, whereby raising the nominal interest rate to its intended target for an extended period of time can boost inflationary expectations and thereby foster employment. (JEL E24, E31, E32, E43, E52, F44, G01)

Wicksell after Woodford

2006 ◽  
Vol 28 (2) ◽  
pp. 171-185 ◽  
Author(s):  
Mauro Boianovsky ◽  
Hans-Michael Trautwein
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
New Keynesian ◽  
General Level ◽  
Credit System ◽  
Nominal Interest Rates ◽  
Cumulative Processes ◽  
Sectoral Composition ◽  
Output Gaps

The New Neoclassical Synthesis that Michael Woodford puts forward in his Interest and Prices (2003) is primarily a synthesis of New Classical and New Keynesian ideas. Yet Woodford presents it as an encompassing approach that goes much further back in time to integrate the pre-Keynesian macroeconomics of Knut Wickseil and his followers. Starting with the title, the book contains many references to Geldzins und Güterpreise (1898), Wicksell's landmark contribution to monetary theory which was translated as Interest and Prices in 1936. Woodford relates his concept of a “monetary policy without money” to Wicksell's concept of the pure credit system and to Wicksell's proposal to eliminate inflation by adjusting nominal interest rates to changes in the price level—an idea that has much in common with modern policy rules à la Taylor. He presents the core model of the new synthesis (in shorthand: IS + AS + Taylor rule) as a “neo-Wicksellian framework” that serves to analyze the dynamics of interest-rate gaps and output gaps (2003, chapter 4). Referring to the Wicksellians of the 1920s and 1930s (primarily Erik Lindahl, Gunnar Myrdal, and Friedrich A. Hayek), Woodford grounds his advocacy of rules to fight inflation on the potential non-neutrality of monetary policy: “[I]t is because instability of the general level of prices causes substantial real distortions—leading to inefficient variation both in aggregate employment and output and in the sectoral composition of economic activity—that price stability is important” (2003, p. 5). He thus sees his analysis of interest-rate and output gaps as “an attempt to resurrect a view” that the old Wicksellians had developed in their analyses of cumulative processes.

scholarly journals Non-Linear Analysis of the Fisher Effect: In the Case of Japan

2017 ◽  
Vol 9 (11) ◽  
pp. 1
Author(s):  
Katsuhiro Sugita
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Error Correction ◽  
Fisher Effect ◽  
Interest Rate Policy ◽  
Vector Error Correction ◽  
Long Run ◽  
Nominal Interest Rates ◽  
Zero Interest Rate Policy ◽  
Rate Policy

The Fisher effect has been commonly analyzed to investigate the long-run relationship between nominal interest rates and expected inflation rate, though it is rarely successful in finding the cointegration relationship as the Fisher effect states. In this paper, a Bayesian Markov switching vector error correction model is applied to analyze non-linearity in the Fisher effect in the case of Japan. We find that the Fisher effect holds in one regime although it does not hold in another regime when the nominal interest rate is stable and does not respond against disequilibrium by the monetary policy such as the zero interest rate policy. This model reveals non-linearity in the error correction mechanism of the Fisher effect in Japan.

scholarly journals The Dependence of China’s Monetary Policy Rules on Interest Rate Regimes: Empirical Analysis Based on a Pseudo Output Gap

2019 ◽  
Vol 11 (9) ◽  
pp. 2557
Author(s):  
Xiaoyu Zhang ◽  
Fanghui Pan
Keyword(s):  
Growth Rate ◽  
Monetary Policy ◽  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Policy Preferences ◽  
Output Gap ◽  
Policy Rules ◽  
Monetary Policy Rules ◽  
Nominal Interest Rates

Although a large number of scholars have studied the policy preferences and monetary policy rules of China’s central bank, most have found no evidence that China’s central bank has adjusted the nominal interest rates against the output gap. By constructing the pseudo output gap defined by the deviation of the real output growth rate and the target growth rate, this paper finds that China’s central bank prefers to adjust the nominal interest rates against the pseudo output gap. The monetary policy preferences and rules of China’s central bank in different interest rate regimes are investigated based on the threshold Taylor rule model. It is found that, in the high-interest-rate regime, the central bank adjusts the nominal interest against the inflation gap and the pseudo output gap, while in the low-interest-rate regime, there is no evidence that the central bank adjusts the nominal interest rates against the pseudo output gap. The lower bound of interest rate reduction and the weakening of interest rate policy effects caused by the liquidity trap of the interest rate are the possible reasons for China’s central bank not to adjust the nominal interest rates against the pseudo output gap.

scholarly journals Nominal Interest Rate, Inflation Money and Market Link in Bangladesh: An Econometric Analysis

2020 ◽  
Vol 7 (1) ◽  
pp. 59-68
Author(s):  
Sanjida Akter Chowdhury ◽  
Md. Yousuf ◽  
Md. Nezum Uddin ◽  
Mohammed Jashim Uddin
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Time Series Data ◽  
Money Market ◽  
Nominal Interest Rate ◽  
Series Data ◽  
Short Term ◽  
Nominal Interest Rates ◽  
Fisher Hypothesis

This paper pursues to establish a connection among the nominal interest rate, the money market, and the inflation rate in Bangladesh using monthly time series data from June 2005 to March 2019. Because some data are stationary at the level and others are stationary at the 1st difference, the ARDL model is applicable for checking the link. There is a strong positive short-term and long-term relationship between inflation and nominal interest rates, suggesting that Bangladeshi data support the Fisher hypothesis for that time. For this study, the T bill, the call money rate is used as a measure of the money market. The research indicates that regulators should concentrate on call money rates in short-term and T-bill and call money rates in the long-term to control Bangladesh's nominal interest rate.

scholarly journals AN EMPIRICAL STUDY OF THE FISHER EFFECT AND THE DYNAMIC RELATION BETWEEN NOMINAL INTEREST RATE AND INFLATION IN SINGAPORE

2009 ◽  
Vol 54 (01) ◽  
pp. 75-88 ◽  
Author(s):  
KING FUEI LEE
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Inflation Rate ◽  
Nominal Interest Rate ◽  
Impulse Response Functions ◽  
Fisher Effect ◽  
Dynamic Relationship ◽  
Long Run ◽  
Price Puzzle ◽  
Nominal Interest Rates

The Fisher Effect postulated that real interest rate is constant, and that nominal interest rate and expected inflation move one-for-one together. This paper employs Johansen's method to investigate for the existence of a long-run Fisher effect in the Singapore economy over the period 1976 to 2006, and finds evidence of a positive relationship between nominal interest rate and inflation rate while rejecting the notion of a full Fisher Effect. The dynamic relationship between nominal interest rate and inflation rate is also examined from the error-correction models derived, and the analysis is extended to investigate the impulse response functions of inflation and nominal interest rates where we discover the presence of the Price Puzzle in the Singapore market.

scholarly journals OPTIMAL STABILIZATION POLICY WITH SEARCH EXTERNALITIES

2013 ◽  
Vol 19 (3) ◽  
pp. 669-700 ◽  
Author(s):  
Aleksander Berentsen ◽  
Christopher Waller
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Money Demand ◽  
Optimal Policy ◽  
Stabilization Policy ◽  
Optimal Stabilization ◽  
Aggregate Shocks ◽  
Informational Frictions ◽  
Nominal Interest Rates

We study optimal monetary stabilization policy in a DSGE model with microfounded money demand. A search externality creates “congestion,” which causes aggregate output to be inefficient. Because of the informational frictions that give rise to money, households are unable to insure themselves perfectly against aggregate shocks. This gives rise to a welfare-improving role for monetary policy that works by adjusting the nominal interest rate in response to these shocks. Optimal policy is determined by choosing a set of state-contingent nominal interest rates to maximize the expected lifetime utility of the agents subject to the constraints of being an equilibrium.

scholarly journals CONHECIMENTO NECESSÁRIO PARA FUGIR DO JUROS NEGATIVOS

2020 ◽  
Vol 4 (2) ◽  
pp. 48-56
Author(s):  
Alexandre Godinho Bertoncello ◽  
Felipe Natan dos Anjos
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Capital Accumulation ◽  
Direct Relationship ◽  
Comparative Method ◽  
Fixed Income ◽  
Educational Levels ◽  
Macroeconomic Conditions ◽  
Small Investors ◽  
National Reality

Interest rates in Brazil have historically been high and for this reason the form of investment in the country has always been unsophisticated, large investors made fixed income, as the CDI and small investors applied in savings. In the present national scenario 2019/2020, it is possible to observe that Brazil will have macroeconomic conditions very different from those experienced in recent years, with a decrease in the aggregate government supply, a reduction in the increase in public and household debt, and a great reduction in interest rates. interest. In the coming years it will be important to diversify investments, after all the phenomenon of negative interest in other markets will be a national reality. To obtain answers, quantitative and exploratoryapproaches were used, and later the comparative method, to corroborate the correlation between capital accumulation and the macroeconomic scenario. As a result, it was possible to ascertain that there is no correlation between the base interest rate and indebtedness, but that there is a relationship between the return on traditional investments and interest, at the same time, educational levels have a direct relationship with indebtedness and thus we conclude that there is a new monetary reality, but we still do not have a new reality for investors and borrowers in Brazil

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