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Keynesian and Monetary Approach to the Liquidity Trap – looking for cointegration evidence from 2008 – Crisis in the United States

Vol. 5, No 2, 2012

Marcin Brycz

University of Gdansk

marcinbrycz@gmail.com

 

Keynesian and Monetary Approach to the Liquidity Trap

– Looking for Cointegration Evidence from 2008

– Crisis in the United States


 

Abstract: The paper reflects on the phenomenon of the liquidity trap in the U.S. during 2008- financial crisis. The modern history of economics indentyfied strictly only one such a case: Japan since mid – 1990’s. The main focus is to collect evidence on the liquidity trap using both: monetary approach and Neo-keynesian. Standard Johansen cointegration anlaysis is used to catch the structural macroeconomic change since the Lehman Bros. collapse. Findings provide the evidence for: a) money demand function change due to zero-bond policy; b) the role of expectations in the liquidity trap condition; c) excessive raise of ‘lemon’ cost on the financial intermediation market.


 

Keywords: liquidity trap, money demand, cointegration.


JEL Classification: E12, E41, E5.