Title: Wealth Effects, the Taylor Rule and the Liquidity Trap
Abstract: This paper analyzes the dynamic properties of the Taylor rule with the zero lower bound on the nominal interest rate in an optimizing monetary model with overlapping generations. The main result is that the presence of wealth effects is not sufficient to rule out the possibility of infinite equilibrium paths with decelerating inflation. In particular, the operation of wealth effects does not avoid the occurrence of liquidity traps when the central bank implements a Taylor-type interest-rate feedback rule.
Publication Year: 2007
Publication Date: 2007-05-21
Language: en
Type: preprint
Access and Citation
Cited By Count: 2
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot