Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Jan, 1976, Volume 44, Issue 1

The Liquidity Trap<129:TLT>2.0.CO;2-Q
p. 129-135

Guy Laroque, Jean-Michel Grandmont

If the liquidity trap is viewed as a property of the aggregate demand for money (or liquid assets), it can be generated from the agents' microeconomic behavior only in special cases, even in the presence of the Keynesian assumption of inelastic expectations. On the other hand, in an economy where a central bank intervenes by open market operations, short run equilibrium interest rates on long term bonds tending to zero are associated with short run equilibrium money stocks which tend to infinity, once the Keynesian assumption of inelastic expectations is made.

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