The Hockey Stick Phillips Curve and the Zero Lower Bound

Gregor Boehl and Philipp Lieberknecht

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: The recently observed disconnect between in ation and economic activity can be ex- plained by the interplay between the zero lower bound (ZLB) and the costs of external financing. In normal times, credit spreads and the nominal interest rate balance out; factor costs dominate firms' marginal costs. When nominal rates are constrained, larger spreads can more than offset the effect of lower factor costs and induce only moderate in ation responses. The Phillips curve is hence at at the ZLB, but features a posi- tive slope in normal times and thus a hockey stick shape. Via this mechanism, forward guidance may induce de ationary effects.

Keywords: Phillips Curve; Financial Frictions; Zero Lower Bound; Disin ation; Forward Guidance (search for similar items in EconPapers)
JEL-codes: C62 C63 E31 E32 E44 E52 E58 E63 (search for similar items in EconPapers)
Pages: 37
Date: 2021-02
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (3)

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Working Paper: The hockey stick Phillips curve and the zero lower bound (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2021_266

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