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Paul Krugman, David R. Henderson
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In macroeconomics, one of Krugman’s key contributions is his 1998 paper on Japan’s liquidity trap. In that paper, he argued that Japan’s interest rates were so low that its economy was in a liquidity trap in which money and bonds were “essentially perfect substitutes.” This meant that increasing the money supply to get the economy out of a recession would not work because it would be like “pushing on a string.” Krugman’s suggested solution was not an expansionary fiscal policy and not an increased money supply per se. Rather, he argued for a credible commitment by Japan’s central bank to raise the expected inflation rate. Doing that would encourage people to reduce their cash balances and spend more.


Selected Works

1979. “A Model of Balance of Payments Crises.” Journal of Money, Credit, and Banking. (August): 311-325.
1979. “Increasing Returns, Monopolistic Competition, and International Trade.” Journal of International Economics. 9 (November): 469-79.
1981. “Intra-industry Specialization and the Gains from Trade.” Journal of Political Economy. 89, no. 5. (October): 959-973.
1991. “Increasing Returns and Economic Geography.” Journal of Political Economy. 99, no. 3. (June): 483-99.
1991. “Target Zones and Exchange Rate Dynamics.” Quarterly Journal of Economics. 106, no 3. (August): 669-82.
1991. Geography and Trade. Cambridge, MA: MIT Press.
1996. “The CPI and the Rat Race.” Slate. December 21.
1996. “Ricardo’s Difficult Idea.”
1996. Pop Internationalism. Cambridge, MA: MIT Press.
1998. “It’s Baaack: Japan’s Slump and the Return of the Liquidity Trap.” Brookings Papers on Economic Activity 1998: 137-205.
2012. (With Gauti B. Eggertsson). “Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach.” Quarterly Journal of Economics. 127, no. 3: 1469-1513.