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Deflation and Deflationary Traps: The Situation in Switzerland

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  • Jean-Marc Natal

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.

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Bibliographic Info

Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

Volume (Year): 140 (2004)
Issue (Month): I (March)
Pages: 127-170

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Handle: RePEc:ses:arsjes:2004-i-5

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Keywords: deflationary trap; monetary policy; Switzerland; Japan;

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Cited by:
  1. Burkhard, Lukas & Fischer, Andreas M., 2009. "Communicating policy options at the zero bound," Journal of International Money and Finance, Elsevier, vol. 28(5), pages 742-754, September.

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