Financial frictions,the Phillips curve and monetary policy

Philipp Lieberknecht

No 47/2019, Discussion Papers from Deutsche Bundesbank

Abstract: This paper proposes a tractable financial accelerator New Keynesian DSGE modelthat allows for closed-form solutions. In the presence of financial frictions, theNew Keynesian Phillips curve features a flat slope with respect to the output gapand is strongly forward-looking. All shocks cause endogenous cost-push effects inthe Phillips curve, leading to larger inflation responses and a breakdown of divinecoincidence. The central bank's contemporaneous trade-off between output gap andinflation stabilization is aggravated. Optimal monetary policy is strongly forward-looking and geared towards inflation stabilization.

Keywords: financial frictions; financial accelerator; Phillips curve; optimal monetary policy (search for similar items in EconPapers)
JEL-codes: E42 E44 E52 E58 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://www.econstor.eu/bitstream/10419/213075/1/1687981116.pdf (application/pdf)

Related works:
Working Paper: Financial Frictions, the Phillips Curve and Monetary Policy (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:472019

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