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  • LancasterWP2023_009

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Unconventional Policies in State-Contingent Liquidity Traps

Research output: Working paper

Published

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Unconventional Policies in State-Contingent Liquidity Traps. / Tayler, William; Zilberman, Roy.
Lancaster: Lancaster University, Department of Economics, 2023. (Economics Working Papers Series).

Research output: Working paper

Harvard

Tayler, W & Zilberman, R 2023 'Unconventional Policies in State-Contingent Liquidity Traps' Economics Working Papers Series, Lancaster University, Department of Economics, Lancaster.

APA

Tayler, W., & Zilberman, R. (2023). Unconventional Policies in State-Contingent Liquidity Traps. (Economics Working Papers Series). Lancaster University, Department of Economics.

Vancouver

Tayler W, Zilberman R. Unconventional Policies in State-Contingent Liquidity Traps. Lancaster: Lancaster University, Department of Economics. 2023 Oct 19. (Economics Working Papers Series).

Author

Tayler, William ; Zilberman, Roy. / Unconventional Policies in State-Contingent Liquidity Traps. Lancaster : Lancaster University, Department of Economics, 2023. (Economics Working Papers Series).

Bibtex

@techreport{b9887b365ff24822997b7edba58445d3,
title = "Unconventional Policies in State-Contingent Liquidity Traps",
abstract = "We characterize optimal unconventional monetary and fiscal-financial policies within a tractable New Keynesian model featuring a monetary policy cost channel. State-dependent deposit tax-subsidy interventions remove the zero lower bound constraint on the nominal interest rate, thereby minimizing output and price fluctuations following both supply-driven and demand-driven liquidity traps. Specifically, deposit subsidies circumvent the inflation-output trade-off arising from stagflationary shocks by enabling the implementation of negative nominal interest rates. Moreover, deposit taxes facilitate modest interest rate hikes to escape deflationary traps. Notably, discretionary and commitment policies with deposit taxes / subsidies deliver virtually equivalent welfare gains, rendering time-inconsistent forward guidance schedules unnecessary.",
keywords = "deposit tax-subsidy, cost channel, optimal policy, discretion vs. commitment, zero lower bound",
author = "William Tayler and Roy Zilberman",
year = "2023",
month = oct,
day = "19",
language = "English",
series = "Economics Working Papers Series",
publisher = "Lancaster University, Department of Economics",
type = "WorkingPaper",
institution = "Lancaster University, Department of Economics",

}

RIS

TY - UNPB

T1 - Unconventional Policies in State-Contingent Liquidity Traps

AU - Tayler, William

AU - Zilberman, Roy

PY - 2023/10/19

Y1 - 2023/10/19

N2 - We characterize optimal unconventional monetary and fiscal-financial policies within a tractable New Keynesian model featuring a monetary policy cost channel. State-dependent deposit tax-subsidy interventions remove the zero lower bound constraint on the nominal interest rate, thereby minimizing output and price fluctuations following both supply-driven and demand-driven liquidity traps. Specifically, deposit subsidies circumvent the inflation-output trade-off arising from stagflationary shocks by enabling the implementation of negative nominal interest rates. Moreover, deposit taxes facilitate modest interest rate hikes to escape deflationary traps. Notably, discretionary and commitment policies with deposit taxes / subsidies deliver virtually equivalent welfare gains, rendering time-inconsistent forward guidance schedules unnecessary.

AB - We characterize optimal unconventional monetary and fiscal-financial policies within a tractable New Keynesian model featuring a monetary policy cost channel. State-dependent deposit tax-subsidy interventions remove the zero lower bound constraint on the nominal interest rate, thereby minimizing output and price fluctuations following both supply-driven and demand-driven liquidity traps. Specifically, deposit subsidies circumvent the inflation-output trade-off arising from stagflationary shocks by enabling the implementation of negative nominal interest rates. Moreover, deposit taxes facilitate modest interest rate hikes to escape deflationary traps. Notably, discretionary and commitment policies with deposit taxes / subsidies deliver virtually equivalent welfare gains, rendering time-inconsistent forward guidance schedules unnecessary.

KW - deposit tax-subsidy

KW - cost channel

KW - optimal policy

KW - discretion vs. commitment

KW - zero lower bound

M3 - Working paper

T3 - Economics Working Papers Series

BT - Unconventional Policies in State-Contingent Liquidity Traps

PB - Lancaster University, Department of Economics

CY - Lancaster

ER -