In the discussion in this post, I mentioned how I viewed the liquidity trap and zero lower bound:
[the phrase "zero lower bound"] is used to mean the appropriate target nominal interest rate (from e.g. a Taylor rule for nominal rates, or estimate of the real rate of interest after accounting for inflation) is less than zero (i.e. because of the ZLB, you can't get interest rates low enough). I've usually stuck to [that] definition ...
I am happy to report that it is essentially the same as Paul Krugman's definition [pdf] of a liquidity trap:
Can the central bank do this? Take the level of government purchases G as given; from (2) and (5) this will tell you the level of C needed to achieve full employment; (4) will tell you the real interest rate needed to get that level of C; and since we already have both the current and future price levels tied down, this implies a necessary level of the nominal interest rate. So all the central bank has to do is increase the money supply until the rate is at the desired level. But what if the required nominal rate is negative? In that case monetary policy can’t get you there: once the interest rate hits zero, people will just hoard any additional cash – we’re in the liquidity trap.
Bold emphasis was italic emphasis in the original. As Paul Krugman says: the required (target) nominal rate is negative. The observed nominal rate is unimportant except as an indicator of the point where people hoard cash.
H/T to Robert Waldmann for pointing me to the reference.