Conservatism and Liquidity Traps

Taisuke Nakata and Sebastian Schmidt

No e101, Working Papers from Tokyo Center for Economic Research

Abstract: In an economy with an occasionally binding zero lower bound (ZLB) constraint, the anticipation of future ZLB episodes creates a trade-off for discretionary central banks between inflation and output stabilization. As a consequence, inflation systematically falls below target even when the policy rate is above zero. Appointing Rogoff's (1985) conservative central banker mitigates this deflationary bias away from the ZLB and enhances welfare by improving allocations both at and away from the ZLB.

Pages: 48 pages
Date: 2015-11
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Conservatism and liquidity traps (2019)
Working Paper: Conservatism and liquidity traps (2015)
Working Paper: Conservatism and Liquidity Traps (2015)
Working Paper: Conservatism and Liquidity Traps (2014)
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