Monetary Policy When the Phillips Curve Is Quite Flat

Paul Beaudry, Chenyu Hou and Franck Portier ()

American Economic Journal: Macroeconomics, 2024, vol. 16, issue 1, 1-28

Abstract: This paper highlights how the presence of a monetary policy cost channel can offer new insights into the relation between monetary policy and inflation when the Phillips curve is quite flat. For instance, we highlight a key condition whereby lax monetary policy can push the economy to a low-inflation trap, and we discuss how, under the same condition, standard policy rules targeting inflation may need to be modified. In the empirical part of the paper, we explore the relevance of the condition that gives rise to these observations. The results support the key condition we emphasize.

JEL-codes: E24 E31 E43 E52 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (4)

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DOI: 10.1257/mac.20220088

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