Browsing by Subject "likviditeettiansa"

A liquidity trap is a situation in which nominal interest rates are near or at zero, and as a result traditional monetary policy interventions to boost economic growth with lower interest rates become ineffective. However, different types of unconventional fiscal and monetary policies can still be used to circumvent the zero lower bound on interest rates. This thesis studies two different kinds of liquidity trap situations: expectations-driven liquidity traps that are caused by exogenous shocks to consumer confidence, and fundamental ones that are caused by discount factor shocks that affect the household's time preferences. The thesis mainly focuses on the expectations-driven traps, and also applies the analysis to the real situation in Japan and its long struggle with low economic growth and near-zero nominal interest rates. In the theoretical setup, the basic fiscal policy tools include government spending and two taxes: a lump-sum tax and labor income tax. In addition, the model includes taxes on consumption and profits. The purpose of the analysis is to see how both conventional and unconventional fiscal policies work in different types of liquidity traps, especially in the expectations-driven case. The main sources that form the basis for the theoretical setup in this thesis are Mertens and Ravn (2014) and Correia, Nicolini and Teles (2013). This thesis also includes a quantitative evaluation that is based on the theoretical model and uses the Japanese economy as a setting. This brings new contribution to existing research, as most of it has taken place in the U.S or Europe. The results of the quantitative evaluation suggest that combining both decreases in labor taxes and increases in consumption taxes could have a stronger effect on inflation than lowering labor taxes alone. However, it is also noted that the actual effects of similar policies in Japan have shown ambiguous results.