Escaping from a Liquidity Trap and De ation : The Foolproof Way and Others

  title={Escaping from a Liquidity Trap and De ation : The Foolproof Way and Others},
  author={Lars E. O. Svensson},
Existing proposals to escape from a liquidity trap and deflation, including my “Foolproof Way,” are discussed in the light of the optimal way to escape. The optimal way involves three elements: (1) an explicit central-bank commitment to a higher future price level; (2) a concrete action that demonstrates the central bank’s commitment, induces expectations of a higher future price level and jump-starts the economy; and (3) an exit strategy that specifies when and how to get back to normal. A… CONTINUE READING
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