The global economic crisis of 2007–2008 has pushed many advanced economies into a liquidity trap. We design a laboratory experiment on the effectiveness of policy measures to avoid expectation-driven liquidity traps. Monetary policy alone is not sufficient to avoid liquidity traps, even if it preventively cuts the interest rate when inflation falls below a threshold. However, monetary policy augmented with a fiscal switching rule succeeds in escaping liquidity trap episodes. We measure the effect of fiscal policy on expectations, and report larger-than-unity fiscal multipliers at the zero lower bound. Experimental results in different treatments are well explained by adaptive learning. (JEL E70, C92, D83, D84, E52, E62).
Monetary and fiscal policy design at the zero lower bound: evidence from the lab / C. Hommes, D. Massaro, I. Salle. - In: ECONOMIC INQUIRY. - ISSN 0095-2583. - 57:2(2019 Apr), pp. 1120-1140. [10.1111/ecin.12741]
Monetary and fiscal policy design at the zero lower bound: evidence from the lab
D. Massaro;
2019
Abstract
The global economic crisis of 2007–2008 has pushed many advanced economies into a liquidity trap. We design a laboratory experiment on the effectiveness of policy measures to avoid expectation-driven liquidity traps. Monetary policy alone is not sufficient to avoid liquidity traps, even if it preventively cuts the interest rate when inflation falls below a threshold. However, monetary policy augmented with a fiscal switching rule succeeds in escaping liquidity trap episodes. We measure the effect of fiscal policy on expectations, and report larger-than-unity fiscal multipliers at the zero lower bound. Experimental results in different treatments are well explained by adaptive learning. (JEL E70, C92, D83, D84, E52, E62).File | Dimensione | Formato | |
---|---|---|---|
EQ_Final_HomMasSal.pdf
accesso aperto
Tipologia:
Post-print, accepted manuscript ecc. (versione accettata dall'editore)
Dimensione
1.55 MB
Formato
Adobe PDF
|
1.55 MB | Adobe PDF | Visualizza/Apri |
ecin.12741.pdf
accesso riservato
Tipologia:
Publisher's version/PDF
Dimensione
536.86 kB
Formato
Adobe PDF
|
536.86 kB | Adobe PDF | Visualizza/Apri Richiedi una copia |
Pubblicazioni consigliate
I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.