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Federal Reserve Bank of St. Louis
Scarcity of Safe Assets, Inflation, and the Policy Trap
We construct a model in which all consolidated government debt is used in transactions, with money being more widely acceptable. When asset market constraints bind, the model can deliver low real interest rates and positive rates of inflation at the zero lower bound. Optimal monetary policy in the face of a financial crisis shock implies a positive nominal interest rate. The model reveals some novel perils of Taylor rules.
Cite this item
David Andolfatto & Stephen D. Williamson, Scarcity of Safe Assets, Inflation, and the Policy Trap, Federal Reserve Bank of St. Louis, Working Papers 2015-2, 23 Jan 2015.
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
This item with handle RePEc:fip:fedlwp:2015-002
is also listed on EconPapers
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