Ellen wrote:
>The idea of liquidity preference, in it's more modern post-keynesian
>version, is that financiers will, if they become bearish on bonds and
>stocks (due to rising interest rates or the expectation of rising interest
>rates, or due to a market crash), refuse to lend long-term. They may be
>willing to hold bills and commercial paper, but business borrowers can't
>undertake major long-term investments if they have to refinance every 6
>months, so the unwillingness of financiers to lend long dampens lending.
so the liquidity trap is recast as a very steep yield curve (high long-term
rates compared to short-term rates for assets of similar risk, liquidity,
tax treatment, such as various Treasury issues), as in the early 1990s?
>Keynes called this situation a liquidity trap and felt this
>was a good argument for fiscal policy and government
>investment programs. Unlike private firms, the federal
>government can finance long-term projects with short-term
>debt.
nowadays, the mainstream economists refer to a "liquidity trap" in Japan,
due to the inability of nominal rates to fall below zero. How does the
Japanese case fit with the above?
Jim Devine [EMAIL PROTECTED] & http://liberalarts.lmu.edu/~jdevine
