interest rates" to fall below zero in all countries, giving rise to a global "liquidity trap." This paper explores the optimal …. ; The key feature of demand shocks in a liquidity trap is that relative prices respond perversely. A negative shock causes … response to conditions generating a global liquidity trap, there is a critical mutual interaction between monetary and fiscal …

interest rates. Given that the liquidity trap is generated by a large increase in the desire to save on the part of the private … financed by deficits may be far more expansionary than that financed by tax increases in such an environment. In a liquidity …