Econometrica: Apr 1969, Volume 37, Issue 2
A Nonlinear, Maximum Likelihood Estimate of the Liquidity Trap
Howard W. PiferRecent articles in Econometrica have questioned whether the empirical evidence from time series data supports the Keynesian hypothesis of the existence of a liquidity trap for low interest rates. This paper proposes a method by which one can obtain the maximum likelihood estimate of the minimum interest rate without imposing a priori constraints upon the parameters in the demand for money equation. Alternative estimating procedures are considered and found to yield consistent estimates of the interest rate floor.
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