Avoiding Liquidity Traps

@article{Benhabib1999AvoidingLT,
  title={Avoiding Liquidity Traps},
  author={Jess Benhabib and Stephanie Schmitt-Groh{\'e} and Martin Uribe},
  journal={Monetary Economics},
  year={1999}
}
Once the zero bound on nominal interest rates is taken into account, Taylor-type interest-rate feedback rules give rise to unintended self-fulfilling decelerating inflation paths and aggregate fluctuations driven by arbitrary revisions in expectations. These undesirable equilibria exhibit the essential features of liquidity traps, as monetary policy is ineffective in bringing about the government's goals regarding the stability of output and prices. This paper proposes several fiscal and… Expand
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