Overcoming the zero bound on nominal interest rates with negative interest on currency : Gesell's solution

@inproceedings{Buiter2003OvercomingTZ,
  title={Overcoming the zero bound on nominal interest rates with negative interest on currency : Gesell's solution},
  author={Willem H. Buiter and Nikolaos Panigirtzoglou},
  year={2003}
}
An economy is in a liquidity trap when monetary policy cannot influence either real or nominal variables of interest. A necessary condition for this is that the short nominal interest rate is constrained by its lower bound, typically zero. The paper considers two small analytical models, one Old-Keynesian, the other New-Keynesian possessing equilibria where not only the short nominal interest rate, but nominal interest rates at all maturities can be stuck at their zero lower bound. When the… CONTINUE READING
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