Template-Type: ReDIF-Paper 1.0
Title: The Hockey Stick Phillips Curve and the Zero Lower Bound
Author-Name: Gregor Boehl
Author-Email: gboehl@uni-bonn.de
Author-Name: Philipp Lieberknecht
Author-Email: philipp.lieberknecht@bundesbank.de

Classification-JEL: C62, C63, E31, E32, E44, E52, E58, E63
Keywords: Phillips Curve, Financial Frictions, Zero Lower Bound, Disin
ation, Forward Guidance

Abstract: The recently observed disconnect between in
ation and economic activity can be ex-
plained 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
in
ation responses. The Phillips curve is hence 
at at the ZLB, but features a posi-
tive slope in normal times and thus a hockey stick shape. Via this mechanism, forward
guidance may induce de
ationary effects.

Note: 
Length: 37
Creation-Date: 2021-02
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp266
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2021_266