Cook, David; Devereux, Michael B. - In: American Economic Journal: Macroeconomics 5 (2013) 3, pp. 190-228
This paper analyzes optimal policy responses to a global liquidity trap. The key feature of this environment is that relative prices respond perversely. A fall in demand in one country causes an appreciation of its terms of trade, exacerbating the initial shock. At the zero bound, this country...