NBER paper offers ‘unified theory’ of liquidity traps
Researchers ask whether major economies are doomed to return to zero lower bound
New research comparing the Great Depression and the Great Recession finds two dimensions are key to determining the optimal policy response: the type of shock and the policy regime.
The working paper, published by US non-profit organisation the National Bureau of Economic Research (NBER), reviews literature on the two major downturns. The authors, Gauti Eggertsson and Sergey Egiev, also consider lessons from the crash Japan suffered in the late 1980s. They focus on “liquidity traps”, or periods
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