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Credible Commitment to Optimal Escape from a Liquidity Trap: The Role of the Balance Sheet of an Independent Central Bank Author info | Abstract | Publisher info | Download info | Related research | Statistics Olivier Jeanne
Lars E. O. Svensson
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An independent central bank can manage its balance sheet and its capital so as to commit itself to a depreciation of its currency and an exchange rate peg. This way, the central bank can implement the optimal escape from a liquidity trap, which involves a commitment to higher future inflation. This commitment mechanism works even though, realistically, the central bank cannot commit itself to a particular future money supply. It supports the feasibility of Svensson's Foolproof Way to escape from a liquidity trap.
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Paper provided by International Monetary Fund in its series IMF Working Papers with number
04/162.
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Length: 43 pages
Date of creation: 13 Sep 2004Date of revision:
Handle: RePEc:imf:imfwpa:04/162Contact details of provider: Postal: International Monetary Fund, Washington, DC USA Phone: (202) 623-7000 Fax: (202) 623-4661 Email: Web page: http://www.imf.org/external/pubind.htm More information through EDIRC
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Keywords: Deflation ; Liquidity ; Central Banks ; Interest rates ; Exchange rates ; Other versions of this item:
This paper has been announced in the following NEP Reports :
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