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 | | In a Keynesian liquidity trap, the central monetary authority cannot raise the price of bonds (and lower their yield) through open market purchases because investors are willing to give up their bonds for cash without any price increase. | | | The Keynes liquidity trap is a situation in which investors are ready, with very little price inducement, to substitute long-term bonds with cash. | | | The implication for monetary policy of these types of liquidity traps is the uncontroversial one that open market purchases of short-term securities will be ineffective in stimulating the economy. |
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http://home.manhattan.edu/~fiona.maclachlan/maclachlan_ISA_mar04.doc
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| | Liquidity Trap or Liquidity Rally? |
| | If there is growth in financial system liquidity, which is defined as a measure of transactions demand for money, in excess of nominal GDP growth, then this excess money has to go somewhere; that is, deposits, fixed income instruments or equities. | | | The additional liquidity being provided by Asian policy makers is winding up in risk-averse assets such as dollar-denominated sovereign bonds (where buyers have been predominantly Asian banks and insurance companies). | | | Liquidity stories, however, usually work well when the earnings and profits cycles are bottoming. |
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http://www.bradynet.com/bbs/asia/100052-0.html
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| | liquidity trap: Information From Answers.com |
| | The "liquidity trap" is a theory pointing to the impotence of monetary policy in depression situations, suggesting that fiscal expansion is needed instead. | | | In this kind of situation, people do not expect high returns on their financial or real investments and so keep their money on their bank accounts or hoards instead of investing it. | | | This diagnosis prompted increased government spending and large budget deficits as a remedy. |
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http://www.answers.com/topic/liquidity-trap
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| | THINKING ABOUT THE LIQUIDITY TRAP - Paul Krugman |
| | In a liquidity trap monetary policy does not work because the markets expect the bank to revert as soon as possible to the normal practice of stabilizing prices; to make it effective, the central bank must credibly promise to be irresponsible, to maintain its expansion after the recession is past. | | | First, if the liquidity trap is short-lived in any case, fiscal policy can serve as a bridge. | | | In this case the central bank would in effect be competing with private investors as a source of investment finance (this would be true even if the intervention itself were in government bonds). |
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http://www.geocities.com/ecocorner/intelarea/pk2.html
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| | Japan's trap |
| | A liquidity trap can happen in a very simple economy - one in which there is no investment, and therefore no way for consumers in the aggregate to make tradeoffs between present and future. | | | Fiscal policy: The classic Keynesian view of the liquidity trap is, of course, that it demonstrates that under some circumstances monetary policy is impotent, and that in such cases fiscal pump-priming is the only answer. | | | And to the extent that firms are financially constrained by the debt run up in the past, they may be unable to invest as much as they otherwise would. |
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http://web.mit.edu/krugman/www/japtrap.html
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| | TCS: Tech Central Station - The Statism Trap |
| | In a liquidity trap, the loss of effectiveness of monetary policy is mirrored by increased effectiveness of fiscal policy. | | | You can run big budget deficits in a liquidity trap without raising interest rates, so that Keynesian stimulus should be really effective. | | | Instead of writing off bad assets and re-allocating capital to efficient uses, the Japanese have effectively remained in denial about bad loans, so that they kept pouring their abundant savings into bankrupt companies and insolvent banks. |
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http://www.techcentralstation.com/052803E.html
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| | Global Economic Forum |
| | Hence, a liquidity trap in the Chinese context could be defined as when the money supply fails to respond to increases in credit quotas. | | | Without an exchange rate adjustment, the only way out that we see of the current deflationary liquidity trap is for the government to write down the debt of enterprises by a large percentage. | | | The balance sheet of the banking system shrank 1.6% in the first quarter of 1998; this trend may be continuing. |
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http://www.morganstanley.com/GEFdata/digests/19980824-mon.html
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| | The Liquidity Trap - Gold & Silver Forum |
| | This quantity [1] which in thermodynamics is liken to the temperature of a liquid, because of credit, credit continues to grow whether there is economic growth or recession. | | | All of corporate America is laboring under current debt burdens and is focusing on how to get rid of the debt that was incurred in the 1990's in some way other than having to incur new debt to expand. | | | What this means is that by congressional mandate they must add liquidity and lower over night lending rates as the economy slows and the risks of loan defaults rise. |
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http://www.goldismoney.info/forums/showthread.php?t=7425
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| | Japan, Lars E.O. Svensson |
| | Discussion of Alan J. Auerbach and Maurice Obstfeld, "The Case for Open-Market Purchases in a Liquidity Trap," FRBSF and SIEPR Conference on Finance and Macroeconomics, San Francisco, Feb 28-Mar 1, 2003, overhead slides (117 KB). | | | "Escaping from Deflation and a Liquidity Trap," talk at the Hong Kong Institute for Monetary Research, Hong Kong Monetary Authority, Dec 17, 2002, overhead slides (71 KB). | | | Discussion of McCallum, "Inflation Targeting and the Liquidity Trap," FRBSF and SIEPR Conference on Asset Prices, Exchange Rates and Monetary Policy, Stanford University, March 2-3, 2001, overhead slides (PDF, 58KB). |
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http://www.princeton.edu/~svensson/japan/japan.htm
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| | Real Balances Debate |
| | Thus, Pigou (1943) proposed, even the "special cases" of a liquidity trap or interest-insensitive investment are not sufficient to maintain unemployment equilibrium as the rightward shifts of the IS curve via the "Pigou Effect" will ensure we are taken to full employment equilibrium. | | | If price levels decline (in unemployment, etc.), real wealth increases, but there is also a liquidity effect because the proportion of wealth made up of liquid money balances as opposed to illiquid capital increases. | | | Let us push the analysis one step further and consider allocation between liquid assets (money) and illiquid assets (capital). |
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http://cepa.newschool.edu/het/essays/keynes/realbalances.htm
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| | Japanese economy - liquidity trap |
| | But the liquidity trap clearly assumes that the demand to hold money is determined by the rate of interest, meaning that this demand should vary inversely with changes in the rate of interest. | | | The real solution is to free up the economy, liquidate the malinvestments and cut taxes further. | | | Keynes argued that it was determined by liquidity preference and the supply of money. |
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http://www.brookesnews.com/052103japan.html
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| | Bloomberg.com: Bloomberg Columnists |
| | The liquidity-trap myth made a comeback in the early 1990s when the U.S., faced with a dysfunctional banking system, required an extended period of low interest rates first to heal banks' balance sheets and second to produce a response in the real economy. | | | The Fed allowed the money supply to contract by about a third, which for him was the cause of the protracted period of declining economic growth, wages and profits. | | | With the federal deficit likely to hit $400 billion this year, there's no lack of government bonds for the Fed to buy. |
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http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_baum&sid=aAve7WbI7aOs
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| | The Liquidity-Trap Myth - Mises Institute |
| | The liquidity trap would occur if the LM curve of the IS-LM framework is horizontal, making any government intervention in the money market futile. | | | The rate of interest is not the "price" which brings into equilibrium the demand for resources to invest with the readiness to abstain from present consumption. | | | According to this view, when investment rises, profit falls, and when investment falls, profit rises. |
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http://www.mises.org/fullstory.asp?control=1226
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| | Fear of a Quagmire? |
| | Though the Japanese government tried to stimulate the economy using the usual tools — deficit spending, interest rate cuts — it was never enough. | | | Falling prices induce people to postpone their purchases in the expectation that prices will fall further, depressing demand today. | | | Deflation leads to rising unemployment and falling capacity utilization, which puts more downward pressure on prices and wages, which accelerates deflation, which makes the economy even more depressed. |
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http://www.commondreams.org/views03/0524-06.htm
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| | ArgMax Economics Weblog: Liquidity Trap |
| | In a liquidity trap, however, people are willing to part easily with their bonds, since they pay little or no interest and are hence roughly equivalent to holding cash; and so only a very small change in price is needed to buy the bonds - even if the Fed is buying lots of them. | | | An easy fix would seem to be to rapidly expand the money supply to generate inflationary expectations and hence drive the economy easily out of the so-called trap. | | | As a result, there will be very little change in interest rates. |
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http://www.argmax.com/mt_blog/archive/000350.php
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| | red onion |
| | "The textbook solution to a liquidity trap is a fiscal expansion, and there's every reason to think that would work." In a situation of low demand and deflation, he said, "before too long, enough political pressure would build up for a big fiscal expansion." | | | Buiter and Professor Ball argued that in situations like Japan's, central banks should make way for the lawmakers who control taxes and spending. | | | The government should immediately prime the pump and send the checks to all deserving and undeserving Americans." |
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http://redonion.blogspot.com/2003/05/liquidity-trap.html
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| | Financial Sense Online Market WrapUp with Jim Willie CB for 06/21/1004 |
| | Rising energy costs hurt corporations in shipping costs, mfg process costs, and household costs. | | | To oppose the extreme slow velocity forces, the US Economy has grown dependent on false wealth from the financial machinery. | | | State, city, and local fiscal distress has greatly inhibited local spending. |
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http://www.financialsense.com/Market/willie/2004/0621.html
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| | About Birds |
| | However, gold reserves are held in significant quantity by many nations as a means of defending their currency, and hedging against the US Dollar, which forms the bulk of liquid currency reserves. | | | Gold would remain the metal of monetary reserve accounting until the collapse of the Bretton Woods agreement in 1972, and remains an important hedge against the actions of central banks and governments, a means of maintaining general liquidity, and as a store of value. | | | During the 1990s Russia liquidated much of the former USSR's gold reserves, while several other nations accumulated gold in preparation for the Economic and Monetary Union. |
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http://about-birds.blogspot.com
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| | CW Resource |
| | When an economy is liquidity trapped, what does the IS-LM model suggest regarding the relative effectiveness of monetary and fiscal policy in affecting output? | | | This lowers the price of money (the interest rate) which spurs investment and consumer spending which in turn, via the mysteries of the multiplier effect, increases output. | | | What does this imply regarding an economy's demand for money at that time? |
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http://myphlip.pearsoncmg.com/cw/mpviewie.cfm?vieid=1283&vbcid=5477
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| | Zero is not enough |
| | But in any case my point is analytical: the thing to worry about is a spiral of declining output relative to potential and declining expected inflation. | | | Now there are a lot of things besides expected inflation that shift the IS curve. | | | But a halfway sensible fiscal policy would really help right... |
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http://www.wws.princeton.edu/~pkrugman/zero.html
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| | BONOBO LAND: Springing the Trap |
| | We agree with Feldstein that there is a particularly good case for state-contingent fiscal policy as a way of dealing with a liquidity trap, even if fiscal policy is not a very useful tool for stabilization policy more generally. | | | Nonetheless, we consider here only the problem of the proper conduct of monetary policy, taking as given the structure of tax distortions. | | | The technology of money has changed a lot since Keynes' time, and there are proposals to make use of these changes. |
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http://bonoboathome.blogspot.com/2003/05/springing-trap.html
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| | Elephant shit |
| | If the interest rate were currently 5 percent, we'd all say that the Fed needs to cut more, while the Treasury and the Congress should focus on long-term fiscal responsibility. | | | It's even more bizarre that someone who spends a lot of time attacking yours truly doesn't know that this is one of my signature academic issues. | | | And do I need to point out that the case for fiscal policy to create jobs rests mainly on the fact that the economy is near a liquidity trap? |
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http://www.wws.princeton.edu/~pkrugman/poop.html
(662 words)
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| | Money supply data suggest possible U.S. liquidity trap |
| | Indeed, the recent slowing in consumer spending and the pullback in stock prices may very well be the first signs that the economy is becoming parched for liquidity. | | | So what's to account for why the money supply falling at a time when the Fed has pushed short-term interest rates down to 45-year lows and maintains loud and clear that it is pursuing an accommodative monetary policy? | | | If this decline in the money supply were to continue, it could restrain economic activity -- not to mention pull the stock market down. |
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http://bylanes.com/item/3369
(706 words)
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| | The Case for Open-Market Purchases in a Liquidity Trap |
| | We show that even were this the case, there remains a powerful argument for large-scale open market operations as a fiscal policy tool. | | | We argue Japan can achieve a substantial welfare improvement through large open-market purchases of domestic government debt. | | | Thus, the microeconomic fiscal benefits of open-market operations in a liquidity trap go hand in hand with standard macroeconomic objectives. |
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http://repositories.cdlib.org/iber/cider/C04-135
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| | The Conspiracy to Keep You Poor and Stupid |
| | Fed Chairman Alan Greenspan has reiterated on several occasions that the central bank could easily provide liquidity by jettisoning the rate-targeting regime and focusing its open market purchases on longer-term maturities." | | | However, when they occur, everyone expects the Fed to do what it did in 1975, 1982, and 1991: cut interest rates to perk up the economy." | | | The column is about two economic concepts: deflation, and the "liquidity trap." As you might expect, Krugman tries to make it seem that these two concepts are coming together in an imminent cataclysmic catastrophe (and only he and a few other really smart people see the looming danger). |
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http://www.poorandstupid.com/2003_05_25_chronArchive.asp
(4241 words)
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| | Inflation Targeting and the Liquidity Trap (SMEALSearch) - Pal,Rangaswamy,Giles,Debnath |
| | From a theoretical perspective, it has been suggested that "expectation trap" and "indeterminacy" dangers are created by variants of inflation targeting, the latter when forecasts of future inflation enter the policy rule. | | | This paper considers whether "liquidity trap" issues have important bearing on the desirability of inflation targeting as a strategy for monetary policy. | | | From an empirical perspective, a quantitative open-economy model is developed and the likelihood of encountering a liquidity trap is explored for several policy rules. |
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http://gunther.smeal.psu.edu/18789.html
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| | EH.Net Encyclopedia: Deflation |
| | In Japan, the debate over the menu of needed reforms and policies to extricate the economy from its deflationary trap continues unabated. | | | Worse still the recent Japanese experience raises the specter of Keynes' famous liquidity trap (Krugman 1998), namely a state of affairs where lower interest rates are unable to stimulate investment or economic activity more generally. | | | "Its Baaaaack: Japan's Slump and the Return of the Liquidity Trap." Brookings Papers on Economic Activity 2 (1998): 137-205. |
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http://eh.net/encyclopedia/siklos.deflation.php
(2814 words)
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| | liquidity |
| | Consultants on treasury, finance, banking, investment, cash and liquidity management. | | | Motor yacht Liquidity and a complete listing of the world's desirable charter yachts at SevenSeasCharters.com. | | | High net-worth investor database direct offer deployment full-service Ir solutions. |
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http://www.hotvsnot.com/search/?s=liquidity
(108 words)
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| | FURTHER NOTES ON JAPAN'S LIQUIDITY TRAP |
| | Now what do you do when an orthodox economic analysis suggests an unorthodox policy conclusion? | | | It turns out that the unavoidable conclusion even of that very buttoned-down analysis sounds very radical: an economy (in principle, any economy - Japan is just the case that motivates the analysis) that is in a liquidity trap needs expected inflation. | | | Japan - like any liquidity trap economy - in effect needs inflation, because it needs a negative real interest rate. |
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http://www.ku.edu/~intecon/Read/liquid.htm
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| | UK / US Housing And The Upcoming Liquidity Trap |
| | Wilson Bowden, Britain's fifth-biggest housebuilder, sees job threat to house market. | | | Any investment actions taken by the Reader as a result of these recommendations are solely the responsibility of the Reader. | | | Once wage and job losses start affecting housing sales, our economy will fly apart like a Hostess crumb-cake tossed into a dishwasher. |
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http://www.freebuck.com/articles/mshedlock/050710mshedlock.htm
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| | Trap - Wikipedia, the free encyclopedia |
| | Liquidity trap, a concept in economics involving a stagnant economy and low interest rates. | | | TRAP law, a type of legislation used to restrict abortion providers. | | | Trapdoor, a recessed (often hidden) door in a floor or ceiling. |
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http://en.wikipedia.org/wiki/Trap
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| | Eastern Economic Journal: COORDINATION, FRAGILITY, HIGH-POWERED MONEY, AND THE LIQUIDITY TRAP: A "TOBINESQUE" ... |
| | The second general production complementarity is both the propagation mechanism for recession, and the source of a true liquidity trap. | | | That is, in this second basic production complementarity "the returns to scale are created by the effects of other agents outside an internal constant returns to scale production process [Cooper, 1999, 43]." Demand for high-powered money interacts with this second production complementarity to trigger general recession, and thereby generate a liquidity trap. | | | Eastern Economic Journal: COORDINATION, FRAGILITY, HIGH-POWERED MONEY, AND THE LIQUIDITY TRAP: A "TOBINESQUE" PARABLE |
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http://www.findarticles.com/p/articles/mi_qa3620/is_200501/ai_n13634841
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| | FRBB Working Papers: The Liquidity Trap, the Real Balance Effect, and the Friedman Rule |
| | The paper shows that with a growing population, monetary policy has distributional effects that give rise to a real balance effect, thereby eliminating the liquidity trap. | | | FRBB Working Papers: The Liquidity Trap, the Real Balance Effect, and the Friedman Rule | | | This paper studies the behavior of the economy and the efficacy of monetary policy under zero nominal interest rates, using a model with population growth that nests, as a special case, a more conventional specification in which there is a single infinitely lived representative agent. |
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http://www.bos.frb.org/economic/wp/wp2005/wp053.htm
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| | EconPapers: Policy Interaction, Expectations and the Liquidity Trap |
| | Under adaptive learning dynamics we find the additional possibility of a liquidity trap, in which the economy slips below this low inflation steady state and is driven to an even lower inflation floor that is supported by a switch to an aggressive money supply rule. | | | However, raising the threshold at which the money supply rule is employed can dislodge the economy from the liquidity trap and ensure a return to the target equilibrium. | | | This item may be available elsewhere in EconPapers: Search for items with the same title. |
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http://econpapers.repec.org/paper/oreuoecwp/2003-33.htm
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| | Whiskey Bar: The Last Match |
| | No one knows when their company is going to get trapped by into having to do more layoffs since businesses are just waiting to see if there is a reason to invest. | | | And with the state economies being crushed, the numbers of unemployed are certainly increasing (even if the numbers are stable - since those who are just graduating aren't finding jobs and others are failing off the umemployment list). | | | I know in the high tech industry, it looks like a long hard slog. |
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http://billmon.org/archives/000282.html
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| | The U.S. is in danger of falling into a liquidity trap. - May. 9, 2003 |
| | Here's how it works: For some reason (like a busted bubble) everyone gets tremendously worried about the future. | | | For most of the 1990s, the problem in Japan was something else: a liquidity trap. | | | But deflation didn't come until rather late in the game for Japan. |
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http://money.cnn.com/2003/05/09/commentary/bidask/bidask
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| | IIES Publications |
| | Lars Svensson, "The Zero Bound in an Open-Economy: A Foolproof Way of Escaping from a Liquidity Trap", Monetary and Economic Studies, 19(S-1), 2001. |
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http://www.iies.su.se/publications/publicationlist/publicationlist.htm
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