Suchergebnisse

We investigate the role of macroprudential policies in mitigating liquidity traps driven by deleveraging, using a simple Keynesian model. When constrained agents engage in deleveraging, the interest rate needs to fall to induce unconstrained agents to pick up the decline in aggregate demand. However, if the fall in the interest rate is limited by the zero lower bound, aggregatedemand is insufficient and the economy enters a liquidity trap. In such an environment, agents'' exanteleverage and insurance decisions are associated with aggregate demand externalities. The competitive equilibrium allo

We investigate the role of macroprudential policies in mitigating liquidity traps. When constrained households engage in deleveraging, the interest rate needs to fall to induce unconstrained households to pick up the decline in aggregate demand. If the fall in the interest rate is limited by the zero lower bound, aggregate demand is insufficient and the economy enters a liquidity trap. In this environment, households' ex ante leverage and insurance decisions are associated with aggregate demand externalities. Welfare can be improved with macroprudential policies targeted toward reducing leverage. Interest rate policy is inferior to macroprudential policies in dealing with excessive leverage. (JEL D14, E23, E32, E43, E52, E61, E62)

We study optimal debt management in the face of shocks that can precipitate the economy into a liquidity trap and call for an increase in public spending in order to mitigate the resulting recession. Our approach follows the sizable literature of macroeconomic models of debt management, which we extend to the case where the zero lower bound on the short-term interest rate binds. We wish to identify the conditions under which removing long debt from the secondary market can become an optimal policy outcome. We show that the optimal debt-management strategy is to issue short-term debt if the government faces a sizable exogenous increase in public spending and if its initial liability is not very large. In this case, our results run against the standard prescription of the debt-management literature. Finally, we show that when the government sets optimally the level of public spending, the optimality of long-term debt is restored.