Briefing

Can China Avoid a Liquidity-Trap Recession? Some Unintended Consequences of Macroprudential Policies

Abstract: A liquidity trap is a nightmare for central banks because the zero lower bound constrains them from further reducing the nominal interest rate to stimulate the economy. The nightmare can be long: For example, Japan — formerly the world's second-largest economy after the U.S. — has been battling its liquidity trap since its real-estate bubble burst in 1990. Recently, some commentators have argued that a liquidity trap is imminent in China — currently the world's second-largest economy — pointing to signs such as deposit surge (despite declining interest rates), mounting deflationary pressures and high unemployment rates among youth.

Keywords: China; Economic Growth; Monetary Policy; Trade; International Economics;

Bibliographic Information

Provider: Federal Reserve Bank of Richmond

Part of Series: Richmond Fed Economic Brief

Publication Date: 2024-04

Volume: 24

Issue: 12