BoJ economists seek best escape route from liquidity traps

The Bank of Japan

Some monetary policy tools appear more effective than others when an economy faces a liquidity trap, where interest rates hit the effective lower bound, a working paper published by the Bank of Japan (BoJ) finds.

Masayuki Inui and Sohei Kaihatsu investigate the effectiveness of quantitative easing (QE) and forward guidance in The power of unconventional monetary policy in a liquidity trap. They employ a Heterogeneous Agent New Keynesian (Hank) model, assuming uninsurable income uncertainty

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