English, Article edition: The Zero Bound in an Open Economy: A Foolproof Way of Escaping from a Liquidity Trap Svensson, Lars-E-O

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Physical Description
  • article
Language
  • English

Edition details

Title
  • The Zero Bound in an Open Economy: A Foolproof Way of Escaping from a Liquidity Trap
Author
  • Svensson, Lars-E-O
Physical Description
  • article
Notes
  • The paper examines the transmission mechanism of monetary policy in an open economy with and without a binding zero bound on nominal interest rates. In particular, a foolproof way of escaping from a liquidity trap is suggested, consisting of a price-level target path, a devaluation of the currency and a temporary exchange rate peg, which is later abandoned in favor of price-level or inflation targeting when the price-level target has been reached. This will jump-start the economy and escape deflation by a real depreciation of the domestic currency, a lower long real interest rate, and increased inflation expectations. The abandonment of the exchange rate peg and the shift to price-level or inflation targeting will avoid the risk of overheating. Some conclusions for Japan are included.
  • RePEc:ime:imemes:v:19:y:2001:i:s1:p:277-312
Language
  • English
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