Arbeitspapier

Inflation targeting and liquidity traps under endogenous credibility

Policy implications are derived for an inflation-targeting central bank, whose credibility is endogenous and depends on its past ability to achieve its targets. This is done in a New Keynesian framework with heterogeneous and boundedly rational expectations. We find that the region of allowed policy parameters is strictly larger than under rational expectations. However, when the zero lower bound on the nominal interest rate is accounted for, self-fulfilling deflationary spirals can occur, depending on the credibility of the central bank. Deflationary spirals can be prevented with a high inflation target and aggressive monetary easing.

Sprache
Englisch

Erschienen in
Series: Bank of Canada Staff Working Paper ; No. 2019-9

Klassifikation
Wirtschaft
Monetary Policy
Business Fluctuations; Cycles
Existence and Stability Conditions of Equilibrium
Thema
Business fluctuations and cycles
Credibility
Monetary policy

Ereignis
Geistige Schöpfung
(wer)
Hommes, Cars H.
Lustenhouwer, Joep
Ereignis
Veröffentlichung
(wer)
Bank of Canada
(wo)
Ottawa
(wann)
2019

DOI
doi:10.34989/swp-2019-9
Handle
Letzte Aktualisierung
10.03.2025, 11:41 MEZ

Datenpartner

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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Hommes, Cars H.
  • Lustenhouwer, Joep
  • Bank of Canada

Entstanden

  • 2019

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