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a liquidity trap? To provide an answer, we employ a small stochastic New Keynesian model with a zero bound on nominal …-term nominal interest rate and debt-financed government spending. The optimal policy response to a liquidity trap critically … sector expectations that helps to dampen the fall in output and inflation at the outset of the liquidity trap. …
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In this paper, we analyse nominal exchange rate and price dynamics after risk shocks with short-term interest rates constrained by the zero lower bound (ZLB). We show with a stylized theoretical model that temporary risk shocks may lead to permanent shifts of the exchange rate and the price...
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