The hockey stick Phillips curve and the zero lower bound

Arbeitspapier

The recently observed disconnect between inflation and economic activity can be explained by the interplay between the zero lower bound (ZLB) and the costs of external financing. In normal times, credit spreads and the nominal interest rate balance out; factor costs dominate firms' marginal costs. When nominal rates are constrained, larger spreads can more than offset the effect of lower factor costs and induce only moderate inflation responses. The Phillips curve is hence flat at the ZLB, but features a positive slope in normal times and thus a hockey stick shape. Via this mechanism, forward guidance may induce deflationary effects.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IMFS Working Paper Series ; No. 153

Classification and Topics

• Classification: Wirtschaft ; Existence and Stability Conditions of Equilibrium ; Computational Techniques; Simulation Modeling ; Price Level; Inflation; Deflation ; Business Fluctuations; Cycles ; Financial Markets and the Macroeconomy ; Monetary Policy ; Central Banks and Their Policies ; Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
• Subject: Phillips Curve ; Financial Frictions ; Zero Lower Bound ; Disinflation ; Forward Guidance

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Böhl, Gregor ; Lieberknecht, Philipp
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)
• (where): Frankfurt a. M.
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/231378
• URN: urn:nbn:de:hebis:30:3-564508
• Last update: 10.03.2025, 11:44 AM CET