Citation

Discussion Paper Details

Please find the details for DP16625 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: HALT: Heterogeneous-Agent Liquidity Traps

Author(s): Florin Ovidiu Bilbiie

Publication Date: October 2021

Keyword(s): forward guidance, Heterogeneity, Inequality, liquidity traps, multipliers, neo-Fisher, Optimal monetary policy and tractable HANK

Programme Area(s): Monetary Economics and Fluctuations

Abstract: In a tractable heterogeneous-agent New-Keynesian model, I study analytically liquidity traps. Heterogeneity determines whether liquidity traps are confidence-driven or fundamental, excess-saving driven, where the latter can be triggered by shocks to inequality or income risk. Heterogeneity amplifies liquidity-trap recessions (without relying on deep deflations), fiscal multipliers, and forward-guidance power when income inequality and risk are countercyclical. Dampening occurs instead when inequality and risk are procyclical, ruling out confidence-driven traps, neo-Fisherian effects, and the forward guidance puzzle. Optimal monetary policy implies that forward-guidance duration is optimally shortened by the same inequality motives that amplify its power.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=16625

Bibliographic Reference

Bilbiie, F. 2021. 'HALT: Heterogeneous-Agent Liquidity Traps'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=16625