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

Olivier Jeanne () and Lars E.O. Svensson ()

No 10679, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: E52 F31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn and nep-mac
Date: 2004-08
Note: EFG ME
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Related works:
Working Paper: Credible Commitment to Optimal Escape from a Liquidity Trap: The Role of the Balance Sheet of an Independent Central Bank (2004)
Working Paper: Credible Commitment to Optimal Escape from a Liquidity Trap: The Role of the Balance Sheet of an Independent Central Bank (2004)
Journal Article: Credible Commitment to Optimal Escape from a Liquidity Trap: The Role of the Balance Sheet of an Independent Central Bank (2007)
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