Date of Original Version

11-2004

Type

Book Chapter

Abstract or Description

Among monetary economists, a major topic of interest during recent years has been the possibility of a liquidity trap, i.e., a situation in which monetary policy stimulus cannot be obtained by the usual method of lowering the setting of the central bank’s interest rate instrument because that rate is at its lower bound of zero. It would be better, I suggest, to use the term “zero lower bound situation,” rather than “liquidity trap,” since the latter seems to imply a priori that there is no available mechanism for generating monetary policy stimulus.

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Published In

Takatoshi Ito and Andrew K. Rose, eds., Monetary Policy with Very Low Inflation in the Pacific Rim, University of Chicago Press for NBER, 9-38.