We study the optimal monetary policy problem in a New Keynesian economy with a zero lower bound (ZLB) on the nominal interest rate, when the steady state natural rate (r*) becomes permanently negative. We show that the optimal policy aims to approach gradually a new steady state with positive...

This paper first presents a dynamic model that features both real and monetary aspects of international trade and is capable of dealing with both full employment and secular unemployment. The model is then utilized to examine the effect of a tariff on the terms of trade, the trade pattern, real...

This study theoretically considers household behavior with wealth preference and empirically investigates the validity of insatiable wealth preference using a nationally representative survey. With wealth preference, the marginal rate of substitution of asset holdings for consumption depends on...

We study the optimal monetary policy problem in a New Keynesian economy with a zero lower bound (ZLB) on the nominal interest rate, when the steady state natural rate (r*) becomes permanently negative. We show that the optimal policy aims to approach gradually a new steady state with positive...