scholarly journals Understanding Benign Liquidity Traps: The Case of Japan

2017 ◽  
Vol 18 (3) ◽  
pp. 267-282 ◽  
Author(s):  
Stefan Homburg
Keyword(s):  
Monetary Policy ◽  
General Equilibrium ◽  
Interest Rates ◽  
Equilibrium Model ◽  
General Equilibrium Model ◽  
Anglo Saxon ◽  
Liquidity Trap ◽  
Approach Zero

Abstract Japan has been in a benign liquidity trap since the 1990s. In a benign liquidity trap, interest rates approach zero and monetary policy is ineffective but output and employment perform decently. Such a pattern contradicts traditional macro theories. This paper introduces a monetary general equilibrium model that is compatible with Japan’s performance and resolves puzzles associated with liquidity traps. Possible conclusions for Anglo-Saxon countries and eurozone members are also discussed.

scholarly journals A GENERAL EQUILIBRIUM MODEL OF THE TERM STRUCTURE OF INTEREST RATES UNDER REGIME-SWITCHING RISK

2005 ◽  
Vol 08 (07) ◽  
pp. 839-869 ◽  
Author(s):  
SHU WU ◽  
YONG ZENG
Keyword(s):  
General Equilibrium ◽  
Interest Rates ◽  
Term Structure ◽  
Risk Premium ◽  
Equilibrium Model ◽  
Regime Switching ◽  
Yield Curve ◽  
Closed Form Solution ◽  
Form Solution ◽  
General Equilibrium Model

This paper develops a general equilibrium model of the term structure of interest rates in the presence of the systematic risk of regime shifts. The model elucidates the economic nature of the regime-shift risk premium and introduces a new source of time-variation in bond returns. A closed-form solution for the term structure of interest rates is obtained under an affine model using log-linear approximation. The model is estimated by Efficient Method of Moments. The regime-switching risk is found to be statistically significant and mostly affect the long-end of the yield curve.

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