Replication data for: The Case for Open-Market Purchases in a Liquidity Trap

Resource Type
  • Auerbach, Alan J.
  • Obstfeld, Maurice
Publication Date
  • Abstract

    Prevalent thinking about liquidity traps suggests that the perfect substitutability of money and bonds at a zero short-term nominal interest rate renders open-market operations ineffective for achieving macroeconomic stabilization goals. We show that even were this the case, there remains a powerful argument for large-scale open market operations as a fiscal policy tool. As we also demonstrate, however, this same reasoning implies that open-market operations will be beneficial for stabilization as well, even when the economy is expected to remain mired in a liquidity trap for some time. Thus, the microeconomic fiscal benefits of open-market operations in a liquidity trap go hand in hand with standard macroeconomic objectives. Motivated by Japan's recent economic experience, we use a dynamic general-equilibrium model to assess the welfare impact of open-market operations for an economy in Japan's predicament. We argue Japan can achieve a substantial welfare improvement through large open-market purchases of domestic government debt.
  • Is supplement to
    DOI: 10.1257/0002828053828473 (Text)
  • Auerbach, Alan J, and Maurice Obstfeld. “The Case for Open-Market Purchases in a Liquidity Trap.” American Economic Review 95, no. 1 (February 2005): 110–37.
    • ID: 10.1257/0002828053828473 (DOI)

Update Metadata: 2020-05-18 | Issue Number: 2 | Registration Date: 2019-12-06