Credible Commitment to Optimal Escape from a Liquidity Trap: The Role of the Balance Sheet of an Independent Central Bank

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...

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Bibliographic Details
Main Author: Jeanne, Olivier (Author)
Format: Electronic eBook
Language:English
Published: Washington, D.C International Monetary Fund 2004
Series:IMF Working Papers Working Paper No. 04/162
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Summary: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 escape from a liquidity trap
Physical Description:1 Online-Ressource (44 p)
ISBN:145185790X
9781451857900

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