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Confidence in future monetary policy as a way to overcome the liquidity trap
[journal article]
Abstract
The global financial crisis of 2007-2009 has changed the landscape for monetary policy. Many central banks in developed economies had to employ various unconventional policy tools to overcome a liquidity trap. These included large-scale asset purchase programs, forward guidance and negative interest... view more
The global financial crisis of 2007-2009 has changed the landscape for monetary policy. Many central banks in developed economies had to employ various unconventional policy tools to overcome a liquidity trap. These included large-scale asset purchase programs, forward guidance and negative interest rate policies. While recently, some central banks were able to return to conventional monetary policy, for many countries the effectiveness of unconventional policies remains an issue. In this paper we assess diverse practices of unconventional monetary policy with a particular focus on expectations and time consistency. The principal aspect of successful policy in terms of overcoming a liquidity trap is the confidence that interest rates will remain low for a prolonged period. However, forming such expectations faces the problem of time inconsistency of optimal policy. We discuss some directions to solve this problem.... view less
Classification
Economic Policy
Free Keywords
liquidity trap; unconventional monetary policy; time inconsistency
Document language
English
Publication Year
2019
Page/Pages
p. 117-135
Journal
Russian Journal of Economics, 5 (2019) 2
ISSN
2618-7213
Status
Published Version; reviewed
Licence
Creative Commons - Attribution-Noncommercial-No Derivative Works 4.0