Deflation and Deflationary Traps: The Situation in Switzerland

Jean-Marc Natal

Swiss Journal of Economics and Statistics (SJES), 2004, vol. 140, issue I, 127-170

Abstract: In this paper we attempt to identify a set of criteria that an economy has to fulfil to fall into a deflationary trap. We argue that these conditions are not met to a sufficient degree by Switzerland and, accordingly, the risk of falling into such a trap is rather small. If an economy finds itself trapped, however, we suggest that the central bank still has alternative tools to reflate it, even if its policy interest rate has already reached the zero floor (the zero lower bound). In a small open economy, temporarily switching to an exchange rate operating target seems to be the most efficient approach. But other strategies including, as a last resort, collaboration with the fiscal authorities, are also theoretically available.

Keywords: deflationary trap; monetary policy; Switzerland; Japan (search for similar items in EconPapers)
JEL-codes: E31 E58 E63 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (1)

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