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A Note on Krugman's Liquidity Trap

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dc.contributor.authorDi Bucchianico, Stefano
dc.contributor.departmentDepartment of Economics, Roma Tre University (Italy)
dc.date2023-09-23T22:06:01.000
dc.date.accessioned2024-04-26T16:31:13Z
dc.date.available2018-11-22T00:00:00Z
dc.date.issued2018-01-01
dc.description.abstractThe 1998 stylized model of Krugman constituted a ground-breaking contribution explaining the long lasting Japanese stagnation as the consequence of a ‘liquidity trap’ situation featuring a negative natural interest rate. Our critique to such a proposal will focus on three aspects. First, we will question the logical structure of the model, providing an alternative interpretation of its closure. Second, we will argue that aggregate demand has no role in the explanation, as the cause for the persistent excess of savings over desired investment is the result of a supply side shock plus a financial rigidity on the nominal interest rate. Finally, we will discuss the restrictive assumptions needed to get a negative natural interest rate, the concept that lies at the foundation of the entire theoretical apparatus. Our conclusion is that the explanation offered within the 1998 contribution does not provide a satisfying rationale for the Japanese stagnation.
dc.identifier.doihttps://doi.org/10.7275/13358827
dc.identifier.urihttps://hdl.handle.net/20.500.14394/22233
dc.relation.ispartofUMass Amherst Economics Working Papers
dc.relation.urlhttps://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1255&context=econ_workingpaper&unstamped=1
dc.rightsUMass Amherst Open Access Policy
dc.source.issue2018-17
dc.source.statuspublished
dc.subjectLiquidity trap
dc.subjectJapanese stagnation
dc.subjectnatural interest rate
dc.subjectzero lower bound
dc.subjectEconomics
dc.titleA Note on Krugman's Liquidity Trap
dc.typearticle
dc.typearticle
digcom.contributor.authorisAuthorOfPublication|email:stefano.dibucchianico@uniroma3.it|institution:Department of Economics, Roma Tre University (Italy)|Di Bucchianico, Stefano
digcom.date.embargo2018-11-22T00:00:00-08:00
digcom.identifierecon_workingpaper/254
digcom.identifier.contextkey13358827
digcom.identifier.submissionpathecon_workingpaper/254
dspace.entity.typePublication
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