Are the world’s largest economies in liquidity trap?
Piotr Misztal
Uniwersytet Jana Kochanowskiego w Kielcach , Polandhttps://orcid.org/0000-0003-2609-3439
Abstract
Falling into the liquidity trap means the lack of effectiveness of the central bank’s expansionary monetary policy aimed at the increase in consumption and investment demand of the country. This situation results from the fact that market participants (households and enterprises), instead of increasing demand, accumulate the growing money supply in the form of cash. Keynes argued that for an economy in a liquidity trap the only way to increase demand in the country and to stimulate the economy is to conduct expansive fiscal policy in the form of higher government spending or the reduction in taxes. The aim of the undertaken research is an attempt to verify the empirical hypothesis of the liquidity trap in the three largest economies in the world, i.e. in the USA, the euro zone and Japan after the 2008 financial crisis. The article uses a research method based on literature studies in macroeconomics and finance as well as statistical methods. All statistical data used in the work came from the statistical office of the European Union – EUROSTAT and from the statistical database of the United Nations Conference on Trade and Development – UNSTATS.
Keywords:
liquidity gap, financial crisis, monetary policyReferences
Blanchard O., Cerutti E., Summers L. (2015). Inflation and Activity – Two Explorations and their Monetary Policy Implications. IMF Working Paper, No 15, 1-28.
Frejtag-Mika E. (2014). Spór o drogi wyjścia z pułapki płynności i deflacji. Acta Universitatis Lodziensis Folia Oeconomica, No 3(303), 91-107.
Friedman M. (1968). The Role of Monetary Policy. American Economic Review, No 58(1), 1-17.
Hicks, J. R. (1937). Mr. Keynes and the ‘Classics’. Econometrica, No 5(2),147-59.
Keynes, J. M. (1936). The General Theory of Employment, Interest, and Money. London: Macmillan.
Krugman P. R. (1998). It’s Baaack: Japan’s Slump and the Return of the Liquidity Trap. Brookings Papers on Economic Activity, No 29(2), 137-206.
Moe T. G., S. Marriner (2013). Eccles and the 1951 Treasury – Federal Reserve Accord: Lessons for Central Bank Independence. Levy Economics Institute of Bard College Working Paper, No. 747, 1-349.
Nakata T., Schmidt S. (2019). Expectations-driven liquidity traps: implications for monetary and fiscal Policy. ECB Working Paper Series, No 2304, 1-54. DOI: 10.17016/FEDS.2019.053
Orphanides, A. (2017). The Fiscal-Monetary Policy Mix in the Euro Area – Challenges at the Zero Lower Bound. European Commission Discussion Paper No 060, 1-44. https://dx.doi.org/10.2139/ssrn.2965805
Rosati D. K. (2016). Nowe tendencje w polityce pieniężnej po kryzysie finansowym 2008–2012. Finanse, Rynki Finansowe, Ubezpieczenia, nr 4, 461-490. DOI: 10.18276/frfu.2016.4.82/1-39
Roubini N., Mihm S. (2011). Ekonomia kryzysu. Warszawa: Wolters Kluwer, 1-371.
Svensson L. O. (2001). The Zero Bound in an Open Economy: A Foolproof Way of Escaping from a Liquidity Trap. Monetary and Economic Studies, No 19, 277–312.
Thirion G. (2017). European Fiscal Union: Economic Rationale and Design Challenges. CEPS Working Document, No 01, 1-38.
Tobin J. (1975). Keynesian Models of Recession and Depression. American Economic Review Papers and Proceedings, No 65, 195-202.
Vandenbroucke F., Luigjes C., Wood D., Lievens K. (2016 ). Institutional Moral Hazard in the MultiTiered Regulation of Unemployment and Social Assistance Benefits and Activation - A Summary of Eight Country Case Studies, CEPS Special Report, No. 137, 1-91.
Uniwersytet Jana Kochanowskiego w Kielcach https://orcid.org/0000-0003-2609-3439
