Credible Commitment to Optimal Escape from a Liquidity Trap The Role of the Balance Sheet of an Independent Central Bank |
|
| Author:
| Jeanne, Olivier
Svensson, Lars E. O. |
| Series title: | IMF Working Papers |
| ISBN: | 978-1-4519-0306-5 |
| Publication Date: | Sep 2004 |
| Publisher: | International Monetary Fund
|
| Book Format: | Ebook |
| List Price: | Contact Supplier contact
|
Book Description:
|
An independent central bank can manage its balance sheet and its capital so as to commit itself to a depreciation of its currency and an exchange rate peg. This way, the central bank can implement the optimal escape from a liquidity trap, which involves a commitment to higher future inflation. This commitment mechanism works even though, realistically, the central bank cannot commit itself to a particular future money supply. It supports the feasibility of Svensson's Foolproof Way to...
More DescriptionAn independent central bank can manage its balance sheet and its capital so as to commit itself to a depreciation of its currency and an exchange rate peg. This way, the central bank can implement the optimal escape from a liquidity trap, which involves a commitment to higher future inflation. This commitment mechanism works even though, realistically, the central bank cannot commit itself to a particular future money supply. It supports the feasibility of Svensson's Foolproof Way to escape from a liquidity trap.