Supply-Side Liquidity Trap, Deflation Bias and Flat Phillips Curve
نویسنده
چکیده
The paper shows that Liquidity Deflation, a liquidity-drainage mechanism associated with Safe Asset Shortage, helps to rationalize supply-side liquidity trap and involuntary unemployment under wage/price flexibility, especially in economies that suffered massive liquidity destruction, like advanced economies in the wake of the Lehman crisis. Moreover, Liquidity Deflation is shown to imply deflation bias and flat Phillips curve in a New Keynesian model.
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