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Speed limit policy and liquidity traps

Taisuke Nakata, Sebastian Schmidt () and Paul Yoo

No 2192, Working Paper Series from European Central Bank

Abstract: The zero lower bound (ZLB) constraint on interest rates makes speed limit policies (SLPs) — policies aimed at stabilizing output growth — less effective. Away from the ZLB, the history dependence induced by a concern for output growth stabilization improves the inflation-output tradeoff for a discretionary central bank. However, in the aftermath of a deep recession with a binding ZLB, a central bank with an objective for output growth stabilization aims to engineer a more gradual increase in output than under the standard discretionary policy. The anticipation of a more restrained recovery exacerbates the declines in inflation and output when the lower bound is binding. JEL Classification: E52, E61

Keywords: liquidity traps; Markov-perfect equilibrium; speed limit policy; zero lower bound (search for similar items in EconPapers)
Date: 2018-10
New Economics Papers: this item is included in nep-cba and nep-mon
Note: 2179645
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Related works:
Working Paper: Speed Limit Policy and Liquidity Traps (2020) Downloads
Working Paper: Speed Limit Policy and Liquidity Traps (2018) Downloads
Working Paper: Speed Limit Policy and Liquidity Traps (2018) Downloads
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