Foreign exchange and the liquidity trap

Owen Humpage and Will Melick ()

Economic Commentary, 2003, issue Oct

Abstract: When short-term interest rates hover near zero, central banks may have difficulty offsetting downward momentum on prices and economic activity through traditional monetary-policy channels, since commercial banks have little incentive to make loans. Economists refer to this situation as a liquidity trap. Do exchange rate targets and foreign exchange operations, as some have suggested, offer a way to escape such a trap?

Keywords: Foreign exchange; Liquidity (Economics); Economic conditions - Japan (search for similar items in EconPapers)
Date: 2003
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