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  4. January 2024
  5. Monetary Policy When the Phillips Curve Is Quite Flat

American Economic Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

Monetary Policy When the Phillips Curve Is Quite Flat

  • Paul Beaudry
  • Chenyu Hou
  • Franck Portier
American Economic Journal: Macroeconomics
vol. 16, no. 1, January 2024
(pp. 1–28)
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Abstract

This paper highlights how the presence of a monetary policy cost channel can offer new insights into the relation between monetary policy and inflation when the Phillips curve is quite flat. For instance, we highlight a key condition whereby lax monetary policy can push the economy to a low-inflation trap, and we discuss how, under the same condition, standard policy rules targeting inflation may need to be modified. In the empirical part of the paper, we explore the relevance of the condition that gives rise to these observations. The results support the key condition we emphasize.

Citation

Beaudry, Paul, Chenyu Hou, and Franck Portier. 2024. "Monetary Policy When the Phillips Curve Is Quite Flat." American Economic Journal: Macroeconomics, 16 (1): 1–28. DOI: 10.1257/mac.20220088

Additional Materials

JEL Classification

  • E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
  • E31 Price Level; Inflation; Deflation
  • E43 Interest Rates: Determination, Term Structure, and Effects
  • E52 Monetary Policy
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