Estimation of the liquidity trap using a panel threshold model

ABSTRACT

This empirical study investigates, unlike previous studies, the presence of a liquidity trap using firm-level data. The study focuses on the case of China. A panel threshold model is employed. The empirical estimation reveals that the interest elasticity of money demand declines as the interest rate falls, a finding indicating that China has not been in a liquidity trap.

KEYWORDS:

• Liquidity trap
• panel threshold model
• demand for money

JEL CLASSIFICATION:

• E41
• E31

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ For detailed interpretation of the threshold model, readers can refer to Hansen (1999).

Additional information

Funding

We would like to thank the foundation from the National Natural Science Foundation of China (71201174 and 71303265), Guangdong Natural Science Foundation (2014A030313577) and the Ministry of Education of Humanities and Social Science project (15YJA790079) for financial support of this research.