last43.txt - much of the best contemporary thinking about the liquidity trap emphasizes the credibility issue with respect to central banks being

last43.txt - much of the best contemporary thinking about...

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much of the best contemporary thinking about the liquidity trap emphasizes the credibility issue with respect to central banks being willing to accept inflation after the economy recovers. Structural insulation of central banks likely reduces this credibility. This is not an argument against independence per se, but against allowing central banks to define their own monetary policy goals. Provide goals are set by the finance ministry, and central banks are held accountable if they generate insufficient inflation, there should be no problem. Summers: new institutional arrangements in which it is normal to pay interest on reserves reduce the concern that a non-independent central bank can be forced to enable excessive deficits through monetization. Money in the current environment is essentially equivalent to floating rate government debt so money finance involves much smaller savings than was once the case. True enough.
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  • Fall '15
  • DR. Aimal

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