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.

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Year of publication:	2015-01-23
Authors:	Andolfatto, David ; Williamson, Stephen
Institutions:	Federal Reserve Bank of St. Louis

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Extent:	application/pdf
Series:	Working Papers.
Type of publication:	Book / Working Paper
Notes:	The text is part of a series Working Papers Number 2015-2 42 pages
Classification:	E4 - Money and Interest Rates ; E5 - Monetary Policy, Central Banking and the Supply of Money and Credit
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10011133768