After the colossal financial crisis of 2008, many monetary policy analyses have shown the profound implications for financial stability of monetary policy in a liquidity trap. This paper investigates how monetary policy in a liquidity trap affects financial stability in a New Keynesian model...

Previous studies have shown that the risk of nominal interest rates hitting the zero lower bound (ZLB) has profound implications for monetary policy. In this paper, we show that habit persistence is a non-negligible deep parameter under optimal discretionary policy when the risk of the ZLB is...