Liquidity Trap and Optimal Monetary Policy Revisited

This paper investigates history dependent easing known as a conventional wis- dom of optimal monetary policy in a liquidity trap. We show that, in an economy where the rate of in ation exhibits intrinsic persistence, monetary tightening is earlier as in ation becomes more persistent. This property is referred as early tightening and in the case of a higher degree of in ation persistence, a central bank implements front-loaded tightening so that it terminates the zero interest rate policy even before the natural rate of interest turns positive. As a prominent feature in a liquidity trap, a forward guidance of smoothing the change in in ation rates contributes to an early termination of the zero interest rate policy.2012～2016年度科学研究費補助金[基盤研究(S)]「長期デフレの解明」(研究代表者 東京大学経済学研究科・渡辺努, 課題番号：24223003