The literature about liquidity traps
and their international contagion is vast.
All of this speaks to the impotence of central banks to jump-start aggregate demand in balance-sheet-constrained economies that have fallen into 1930s-style "liquidity traps
Yetman, "Capital Controls, Global Liquidity Traps
and the International Policy Trilemma," NBER Working Paper No.
In their efforts to fight inflation, central banks keep interest rates high, which effectively created liquidity traps
in these economies.
Australian author Dudley Skelley presents Let's Begin Again for the New Millennium, an anthology of 21 socially conscious poems about potential solutions to human problems - especially liquidity traps
(scarcity of credit) and environmental issues.
--(2011a) "Liquidity Traps
, Once Again." New York Times (18 March).
I don't wish to leave the impression that Congdon has completely overlooked the problems raised by liquidity traps
. He discusses ideas such as buying longer-term securities, whose yields have not fallen to zero.
While the book covers a vast range of financial meltdowns, from currency crashes and sovereign defaults to bank runs, liquidity traps
, and inflation crises-highlighting the clustering-nature of such episodes-the authors point to a particular problem with short-term debt that constantly needs to be "rolled-over" or refinanced:
In addition to demonstrating how the emergence of risk premiums in money and capital markets can generate liquidity traps
at positive interest rates and may drive economies into recessions, it shows the following: (1) Fiscal policy works even in a small, open economy under flexible exchange rates when the country is stuck in a liquidity trap
; (2) Near the fringe of liquidity traps
, there may be perfect traps, in which neither monetary nor fiscal policy works when used in isolation but policy coordination is called for; and (3) Massive financial crises in the domestic money market may even destabilize the economy.
Goodfriend (2000) and Buiter and Panigirtzoglou (2003) have revived an old proposal by Silvio Gesell for the government to tax money, effectively removing the lower bound on interest rates and therefore eliminating the possibility of liquidity traps
This problem is sometimes referred to as a "liquidity trap
." Liquidity traps
are rare in modern times, but the decade of economic stagnation suffered by Japan in the 1990s after the bursting of its financial bubble is cited as an example.
The government will strive to ease financial distress of SMEs in order to protect viable enterprises from falling into liquidity traps
. Efforts will also be made to alleviate burden on households, by lowering interest rates and strengthening financial support.