This setting lets you change the way you view articles. You can choose to have articles open in a dialog window, a new tab, or directly in the same window.
Open in Dialog
Open in New Tab
Open in same window
Open in New Tab
Open in same window
Journal of Economic Perspectives: Vol. 17 No. 4 (Fall 2003)
JEP Volume. 17, Issue 4 | 
Previous ArticleNext Article
Sign up for Email Alerts Follow us on Twitter
Full-text Article (Complimentary)
View Comments on This Article (0) | Login to post a comment
Previous ArticleNext Article
Expand
Quick Tools:
Print Article Summary Email Link to this Article Export CitationSign up for Email Alerts Follow us on Twitter
Explore:
Escaping from a Liquidity Trap and Deflation: The Foolproof Way and Others
Article Citation
Svensson, Lars E. 2003. "Escaping from a Liquidity Trap and Deflation: The Foolproof Way and Others."
The Journal of Economic Perspectives,
17(4): 145-166.
DOI: 10.1257/089533003772034934
DOI: 10.1257/089533003772034934
Abstract
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 currency depreciation is a direct consequence of expectations of a higher future price level and hence an excellent indicator of those expectations. Furthermore, an intentional currency depreciation and a crawling peg, as in the Foolproof Way, can implement the optimal way and, in particular, induce the desired expectations of a higher future price level. I conclude that the Foolproof Way is likely to work well for Japan, which is in a liquidity trap now, as well as for the euro area and the United States, in case either would fall into a liquidity trap in the future.
Article Full-Text Access
Full-text Article (Complimentary)
Authors
Svensson, Lars E.O.
Comments
View Comments on This Article (0) | Login to post a comment
