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Collateral constraints, the zero lower bound, and the debt–deflation mechanism

Stefano Neri () and Alessandro Notarpietro ()

Economics Letters, 2019, vol. 174, issue C, 144-148

Abstract: Negative cost-push shocks lead to lower inflation and higher output in normal times. These shocks are instead contractionary when collateral constraints interact with the zero lower bound, as the debt–deflation mechanism plays a key amplifying role. The effects are larger and more persistent when nominal wages cannot be reduced.

Keywords: Collateral constraints; Zero lower bound; Debt–deflation mechanism (search for similar items in EconPapers)
JEL-codes: E31 E37 E52 (search for similar items in EconPapers)
Date: 2019
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