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Global Liquidity Trap

 

 

Write a research project discussing a topic on Global Liquidity Trap
The paper should follow the basic structure:
I. The paper should start with a short introduction/motivation section. Why should anyone care about your topic? Here talk about specifics, current events, politics, etc. (~1 pg). Be sure to establish a clear thesis (argument/focus) and lay out preliminary support you will reference throughout the next section.
– Use sources from reputable publications here (NY Times, Wall Street Journal, Economist, etc)
II. Next, you are expected to review the major contributions on the topic and the current state of the literature, citing at minimum five sources scholarly sources. This should be the bulk of your paper (~3-4 pgs). It is a literature review of your topic. If you have a specific topic (e.g. a specific trade deal, etc) then be sure to generalize your topic for this section. So if you were discussing NAFTA or Brexit, you would want to discuss recent literature on free trade agreements/areas for the literature review. Here you want to discuss general theories on your topic so that you can establish the necessary economic relationships.
– Use scholarly sources here (Journal Articles, Federal Reserve, IMF or NBER Studies, etc)
III. Extension. You just reviewed the literature on a specific subject. Here you should suggest an extension to the current literature (~.5 pgs). What is missing from the literature you reviewed (could be a new data set, case study, research methodology)?
IV. Conclusion. Wrap it up. Tie together the support presented above to call back to main thesis (~ .5 pg).
V. Reference Section that links to in-text citations. Use any citation format you choose (APA, MLA, etc), just be consistent throughout the paper. If you choose to, you can simply footnote within the text and forego this section.

Sample Solution

A liquidity trap is a situation in which monetary policy is unable to stimulate economic growth because interest rates are already at a very low level.

Full Answer Section

Introduction

A liquidity trap is a situation in which monetary policy is unable to stimulate economic growth because interest rates are already at a very low level. This can happen when consumers and businesses are unwilling to spend money, even when interest rates are low. In a global liquidity trap, this situation occurs in multiple countries simultaneously.

There are a number of reasons why a global liquidity trap might occur. One possibility is that a financial crisis has caused investors to lose confidence in the financial system. This can lead to a decrease in investment and spending, which can further depress economic growth. Another possibility is that there is a global economic slowdown, which can also lead to a decrease in investment and spending.

Literature Review

The literature on global liquidity traps is relatively limited. However, there are a number of studies that have examined the causes and implications of liquidity traps. One study by Fujiwara et al. (2013) found that global liquidity traps can be caused by a number of factors, including financial crises, global economic slowdowns, and coordination failures among central banks. The study also found that global liquidity traps can have a significant impact on economic growth, leading to lower output and employment.

Another study by the Bank for International Settlements (BIS) (2015) found that alternative monetary policy tools, such as quantitative easing and negative interest rates, can be effective in managing liquidity traps. The study argued that these tools can help to increase the money supply and stimulate economic growth.

Extension

One area where the literature on global liquidity traps could be extended is by examining the role of international cooperation in managing liquidity traps. In a globalized economy, countries are increasingly interconnected, and a liquidity trap in one country can have spillover effects on other countries. Therefore, it is important for countries to cooperate in order to manage liquidity traps effectively.

One way that countries can cooperate is by coordinating their monetary policies. This can help to ensure that countries are not competing with each other to lower interest rates, which can lead to a race to the bottom. Additionally, countries can cooperate by sharing information about their economic conditions. This can help countries to better understand the causes of liquidity traps and to develop effective policy responses.

Conclusion

Global liquidity traps are a serious economic problem that can have a significant impact on economic growth. However, there are a number of policy tools that can be used to manage liquidity traps. By cooperating with each other, countries can increase their chances of successfully managing liquidity traps and avoiding the negative consequences of these events.

References

  • Fujiwara, I., Nakajima, T., Sudo, N., & Teranishi, Y. (2013). Global liquidity trap. Journal of Monetary Economics, 60(8), 936-949.
  • Bank for International Settlements. (2015). Does the liquidity trap exist? (Working Paper No. 459).

Works Cited

  • Fujiwara, I., Nakajima, T., Sudo, N., & Teranishi, Y. (2013). Global liquidity trap. Journal of Monetary Economics, 60(8), 936-949.
  • Bank for International Settlements. (2015). Does the liquidity trap exist? (Working Paper No. 459).

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