Speed Limit Policy and Liquidity Traps
Sebastian Schmidt () and
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Paul Yoo: UNC Kenan-Flagler Business School (E-mail: email@example.com)
No 18-E-06, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan
The zero lower bound (ZLB) constraint on interest rates makes speed limit policies (SLPs) - policies aimed at stabilizing the 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.
Keywords: Liquidity Traps; Markov-Perfect Equilibrium; Speed Limit Policy; Zero Lower Bound (search for similar items in EconPapers)
JEL-codes: E52 E61 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Working Paper: Speed Limit Policy and Liquidity Traps (2020)
Working Paper: Speed limit policy and liquidity traps (2018)
Working Paper: Speed Limit Policy and Liquidity Traps (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:18-e-06
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