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Collateral constraints, the zero lower bound, and the debt–deflation mechanism

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  • Neri, Stefano
  • Notarpietro, Alessandro

Abstract

Negative cost-push shocks lead to lower inflation and higher output in normal times. These shocks are instead contractionary when collateral constraints interact with the zero lower bound, as the debt–deflation mechanism plays a key amplifying role. The effects are larger and more persistent when nominal wages cannot be reduced.

Suggested Citation

  • Neri, Stefano & Notarpietro, Alessandro, 2019. "Collateral constraints, the zero lower bound, and the debt–deflation mechanism," Economics Letters, Elsevier, vol. 174(C), pages 144-148.
    • Handle: RePEc:eee:ecolet:v:174:y:2019:i:c:p:144-148
    DOI: 10.1016/j.econlet.2018.11.012
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    References listed on IDEAS

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    Cited by:

    1. Busetti, Fabio & Neri, Stefano & Notarpietro, Alessandro & Pisani, Massimiliano, 2021. "Monetary policy strategies in the New Normal: A model-based analysis for the euro area," Journal of Macroeconomics, Elsevier, vol. 70(C).

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    More about this item

    Keywords

    Collateral constraints; Zero lower bound; Debt–deflation mechanism;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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