Time-Varying Risk Shocks and the Zero Lower Bound

Johannes Strobel, Gabriel Lee, Victor Dorofeenko and Kevin Salyer ()

VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy from Verein für Socialpolitik / German Economic Association

Abstract: This paper shows that increased volatility of Örm-level productivity can push the nominal interest rate to its lower bound with large amplification effects on macroeconomic aggregates. The framework combines a simple canonical Önancial accelerator model, time varying risk shocks, and a zero lower bound on the nominal interest rate. The amplification mechanism results from a portfolio re-balancing from households, who reduce capital investment in favor of risk-free bonds. Consequently, the capital loan volume decreases which then leads to a large decline in economic activity. We show that a substantial drop in output is accompanied by small changes in ináation. We, thus, also address the "Missing Deáation Puzzle" in the Phillips Curve literature.

Keywords: zero lower bound; credit channel; time-varying risk shocks; missing deáation puzzle; monetary policy (search for similar items in EconPapers)
JEL-codes: E2 E3 E5 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-dge, nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/203491/1/VfS-2019-pid-25560.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc19:203491

Access Statistics for this paper

More papers in VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy from Verein für Socialpolitik / German Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().