The Macroeconomic Risks of Undesirably Low Inflation

Jonas E. Arias, Christopher Erceg and Mathias Trabandt
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Jonas E. Arias: https://www.philadelphiafed.org/our-people/jonas-arias

No 1162, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper investigates the macroeconomic risks associated with undesirably low inflation using a medium-sized New Keynesian model. We consider different causes of persistently low inflation, including a downward shift in long-run inflation expectations, a fall in nominal wage growth, and a favorable supply-side shock. We show that the macroeconomic effects of persistently low inflation depend crucially on its underlying cause, as well as on the extent to which monetary policy is constrained by the zero lower bound. Finally, we discuss policy options to mitigate these effects.

Keywords: Inflation Expectations; Wages; Productivity; disinflation; Monetary Policy; Liquidity Trap; DSGE Model (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2016-04-12
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Related works:
Journal Article: The macroeconomic risks of undesirably low inflation (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1162

DOI: 10.17016/IFDP.2016.1162

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