Do Higher Interest Rates Raise or Lower Inflation?

نویسنده

  • John H. Cochrane
چکیده

The standard “new-Keynesian” model accounts well for the fact that inflation has been stable at a zero interest rate peg. However, If the Fed raises nominal interest rates, the same model model predicts that inflation will smoothly rise, both in the short run and long run. This paper presents a series of failed attempts to escape this prediction. Sticky prices, money, backward-looking Phillips curves, alternative equilibrium selection rules, and active Taylor rules do not convincingly overturn the result. The evidence for lower inflation is weak. Perhaps both theory and data are trying to tell us that, when conditions including adequate fiscal-monetary coordination operate, pegs can be stable and inflation responds positively to nominal interest rate increases. ∗Hoover Institution and NBER. The current version of this paper is posted at http://faculty. chicagobooth.edu/john.cochrane/research/papers/fisher.pdf Please do not post copies. Post a link instead so that people find the most recent version. I thank Edward Nelson for helpful comments.

برای دانلود متن کامل این مقاله و بیش از 32 میلیون مقاله دیگر ابتدا ثبت نام کنید

ثبت نام

اگر عضو سایت هستید لطفا وارد حساب کاربری خود شوید

منابع مشابه

Wedges, and Capital Formation

This paper focuses on how inflation interacts with taxes and interest rates to affect capital formation.1 It uses a simple credit-market framework to explain how inflation magnifies the distorting effects of taxation when the tax treatment of interest income and expense is not fully indexed to inflation.2 The distortion involves a real tax wedge consisting of the difference between the real int...

متن کامل

Comment on Bennett T. McCallum’s Should Central Banks Raise their Inflation Targets?

McCallum’s answers his question by saying that raising this target is a “sophisticated but predominantly bad idea” and the paper gives eight reasons for this conclusion. The first is that inflation is a particularly distortionary tax. The second is that, with sticky prices, inflation can lead to inefficient changes in relative prices. The third is that, based on the analysis of Schmitt-Grohé an...

متن کامل

Monetary Policy with Interest on Reserves

I analyze monetary policy with interest on reserves and a large balance sheet. I show that conventional theories do not determine inflation in this regime, so I base the analysis on the fiscal theory of the price level. I find that monetary policy can peg the nominal rate, and determine expected inflation. With sticky prices, monetary policy can also affect real interest rates and output, thoug...

متن کامل

Price-Level Targeting and Risk Management in a Low-Inflation Economy

With inflation and policy interest rates at historically low levels, policymakers show great concern about "downside tail risks" due to a zero lower bound on nominal interest rates. Low probability or tail events, such as sustained deflation or recession, are disruptive for the economy and can be difficult to resolve. This paper shows that price-level targeting mitigates downside tail risks res...

متن کامل

Monetary Policy and Japan ’ s Liquidity Trap

During the long economic slump in Japan, monetary policy in Japan has essentially consisted of a very low interest rate (since 1995), a zero interest rate (since 1999), and quantitative easing (since 2001). The intention seems to have been to lower expectations of future interest rates. But the problem in a liquidity trap (when the zero lower bound on the central bank's instrument rate is stric...

متن کامل

ذخیره در منابع من


  با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید

برای دانلود متن کامل این مقاله و بیش از 32 میلیون مقاله دیگر ابتدا ثبت نام کنید

ثبت نام

اگر عضو سایت هستید لطفا وارد حساب کاربری خود شوید

عنوان ژورنال:

دوره   شماره 

صفحات  -

تاریخ انتشار 2016