Credible Commitment to Optimal Escape from a Liquidity Trap : The Role of the Balance Sheet of an Independent Central Bank

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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Year of publication:	[2006]
Authors:	Jeanne, Olivier
Other Persons:	Svensson, Lars E. O. (contributor)
Publisher:	[2006]: [S.l.] : SSRN
Subject:	Liquiditätspräferenz \| Liquidity preference \| Theorie \| Theory \| Zentralbankunabhängigkeit \| Central bank independence \| Glaubwürdigkeit \| Credibility \| Geldpolitik \| Monetary policy

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