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Assessment of Precautionary Programs in the Keynesian Liquidity Trap in an Environment of Increasing Economic Uncertainty

Journal: Efil Ekonomi Araştırmaları Dergisi (Vol.4, No. 13)

Publication Date:

Authors : ;

Page : 27-103

Keywords : New Keynesian; Liquidty Trap; International Monetary Policy Coordination; Economic Policy Uncertainty Index;

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In the study, during the period of systemic risks evolved into systematic risks, we discussed the monetary authorities' “package crisis exit strategies” developed under the international monetary policy coordination without considering their country's dynamics. We tackled the policy development and implication process in the context of Keynes's (1936)'s liquidity trap, and Hicks (1937)' assertion over the ineffectiveness of traditional monetary policy during this liquidity trap. In particular, while the governments and central banks of developing countries take comprehensive and innovative steps in formulating fiscal and monetary policy, and bring out a new view called “Developmental Central Banking” (which simultaneously cares about economic growth, employment, investment, financial stability and structural transformation), the habits of central banking in some countries that survived the crisis with relatively slight damage were reversed based on inflation targeting, which were customary from the Neoliberal period, but kept growth, employment and real economy in the secondary plan. Considering these developments and the effectiveness of the solution proposals developed by the Neoclassical and Monetarist paradigms for such chronic problems, the necessity of New Keynesian precautionary measures have been seemed inevitable.

Last modified: 2021-09-24 23:28:17