“Liquidity trap” is just a failure of monetary policy

In Japan and the liquidity trap Noah Smith writes:

…Japan, since its economy experienced a boom in 2002-2006, probably driven by increased trade with China, during which time interest rates and inflation both stayed around zero.

Yes, it did but it was not driven by increased trade with China. It was the only time (prior to Abenomics) that Japan pursued what could be called an expansive monetary policy in the guise of QE. Note that growth was relative strong at the same time that fiscal stimulus was being reduced!

Liquidity Trap_1

 

Liquidity Trap_2

About these ads

2 thoughts on ““Liquidity trap” is just a failure of monetary policy

  1. Krugman : “But it’s not right, as Noah shows logically; and of course the example of Japan, which did massive QE without paying interest on reserves, and saw nothing happen, reinforces the point.”

    Still a liquidity trap prophet
    http://nyti.ms/1aITKRz

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s