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Managing a Liquidity Trap


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by Bubbabeefcake     💰tip   follow   2013 Feb 9, 6:50am  

http://johnhcochrane.blogspot.com/2013/01/managing-liquidity-trap.html?m=1

The policy issue is this: we're in a recession. Interest rates are zero, and can't go lower. The Fed is desperately trying to goose the economy. Lots of people (most of the recent Jackson Hole Fed conclave) are advising  "open-mouth operations," and  "managing expectations," that the key to current prosperity is for the Fed to make statements  about what it will do in the future; and these statements on their own, with no concrete action, will "increase demand" and lower today's unemployment. The Fed has been convinced, with more and more "forward guidance" as part of its strategy.

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