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Inflation, debt and the zero lower bound

Stefano Neri () and Alessandro Notarpietro ()

No 242, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper analyses the macroeconomic effects of a protracted period of low and falling inflation rates when monetary policy is constrained by the zero lower bound (ZLB) on nominal interest rates and the private sector is indebted in nominal terms (debt-deflation channel). In this scenario, even cost-push shocks that in normal circumstances would reduce inflation and stimulate output are found to have contractionary effects on economic activity, especially when the interplay of ZLB and debt deflation is considered.

Keywords: zero lower bound; monetary policy; disinflation; debt-deflation channel. (search for similar items in EconPapers)
JEL-codes: E21 E31 E37 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2014-10
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