Macro-prudential policies cut liquidity trap risk – ECB paper

A working paper published by the European Central Bank argues that macro-prudential policies can reduce the risk that an economy in recession will fall into a liquidity trap.

In Benefits of macro-prudential policy in low interest rate environments, Alejandro Van der Ghote notes that previous economists have argued that macro-prudential policy has benefits besides increasing financial stability. He points to papers by Farhi and Werning, and Korinek and Simsek, which find that macro-prudential