The Routes into and out of the

Zero Lower Bound
Robert E. Hall
Hoover Institution and Department of Economics
Stanford University
Jackson Hole Symposium
Federal Reserve Bank of Kansas City
August 23, 2013

1

The Financial Wedge
16
14

Percent per year

12
10
8
6
4
2
0
2009

2012

2015

2018

2021

2

The Ratio of Consumption to
Disposable Income
0.94
0.93
0.92
0.91
0.90
0.89
0.88
0.87
0.86
0.85
2006

2007

2008

2009

2010

2011

2012

2013

3

Real Household Liabilities
110

105

100

95

90

85

80
2006

2007

2008

2009

2010

2011

2012

2013

4

Burden of Deleveraging as a
Percent of Consumption
10

Percent of consumption

5

0

‐5

‐10

‐15
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

5

Google searches for “withdrawal
penalty”
60

50

Index value

40

30

20

10

0
2005

2006

2007

2008

2009

2010

2011

2012

2013

6

In Equilibrium, the Real Interest
Rate is at the Level that Equates
Output Demand to Supply
0.025

0.020

0.015

Real interest rate

0.010

0.005

0.000

‐0.005

‐0.010

‐0.015

‐0.020

Supply

Demand

‐0.025
0.94

0.96

0.98

1.00

1.02

1.04

1.06

1.08

Output

7

Excess Supply of Output when
the ZLB Binds
0.025

0.020

Excess supply
of output

0.015

Real interest rate

0.010

0.005

Interest rate 
bounded above 
equilibrium level

0.000

‐0.005

‐0.010

‐0.015

‐0.020

Supply

Demand

‐0.025
0.92

0.94

0.96

0.98

1.00

1.02

1.04

1.06

1.08

Output

8

Two Measures of U.S. Inflation
6
5
4
3
2
1
0
Total CPI

‐1

PCE core
Target

‐2
‐3
2006

2007

2008

2009

2010

2011

2012

2013

9

U.S. Wage Inflation
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2006

2007

2008

2009

2010

2011

2012

2013

10

Job Value from JOLTS Compared
to Wilshire Stock-Market Index
1400

 18,000

 16,000
1200

 14,000
1000
 12,000

800

 10,000

 8,000

600

Job value
(right scale)

 6,000

400

200

Stock market
(right scale)

 4,000

 2,000

0

 ‐

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

11

ZLB Analysis with Shifts in Both
Demand and Supply
0.025

Supply

Real interest rate= minus inflation

0.020

0.015

0.010

0.005

0.000

‐0.005

‐0.010

‐0.015

‐0.020

Demand

‐0.025
0.90

0.95

1.00

1.05

1.10

Output

12

Stocks of Business, Residential,
and Consumer Physical Capital
125
120
115
110
105
100
95
Business
90

Residential
Consumer durables

85
80
2004

2005

2006

2007

2008

2009

2010

2011

13

Sign up to vote on this title
UsefulNot useful