Front Matter Page
Research Department
Authorized for distribution by Eduardo Borensztein
Contents
I. Introduction
II. A Simple Open Economy Model of the Liquidity Trap
A. The Structure of the Economy
B. Equilibrium Relationships
C. Productivity
D. Monetary Policy
E. A Liquidity Trap in Period I
F. The Optimal Policy Under Commitment
G. Implementing the Commitment Equilibrium
III. The Balance-Sheet Concerns of Central Banks
IV. How an Independent Central Bank can Commit to a Future Price Level
V. Generalizations
A. A Multiperiod Liquidity Trap
B. Generalizing the Capital Constraint
C. Pegging the Price of Other Assets than Foreign Exchange
VI. Conclusions
Figures
1. The Liquidity-Services Function
2. Central Banks’ Capital and Reserves, 1999-2003
Appendices
I. First-Order Conditions
II. Derivation of Equation (12)
III. Households and Firms Perceiving a Positive Probability of a Liquidity Trap
IV. Central-Bank Assets Including Domestic Credit
References