Causes of liquidity traps are ‘crucial’ to policy response – BdF paper

The Banque de France

Quantitative easing may actually worsen liquidity traps in some circumstances, a working paper published by the Banque de France argues.

In Money and capital in a persistent liquidity trap, Philippe Bacchetta, Kenza Benhima and Yannick Kalantzis use a monetary model with asset scarcity to look at the implications of a persistent liquidity trap.

If a liquidity trap is caused by investors carrying out a sustained deleveraging, then the outcome is likely to be a decline in output that does not

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