01906cas a2200241 a 4500 AALejournalIMF002301 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451848588 1018-5941 BD-DhAAL BD-DhAAL Eggertsson, Gauti. How to Fight Deflation in a Liquidity Trap : Committing to Being Irresponsible / Gauti Eggertsson. Washington, D.C. : International Monetary Fund, 2003. 1 online resource (42 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students I model deflation, at zero nominal interest rate, in a microfounded general equilibrium model. I show that deflation can be analyzed as a credibility problem if the government has only one policy instrument, money supply carried out by means of open market operations in short-term bonds, and cannot commit to future policies. I propose several policies to solve the credibility problem. They involve printing money or nominal debt and either (1) cutting taxes, (2) buying real assets such as stocks, or (3) purchasing foreign exchange. The government credibly "commits to being irresponsible" by using these policy instruments. It commits to higher money supply in the future so that the private sector expects inflation instead of deflation. This is optimal, since it curbs deflation and increases output by lowering the real rate of return. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2003/064 Full text available on IMF http://elibrary.imf.org/view/journals/001/2003/064/001.2003.issue-064-en.xml IMF e-Library