Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments September 22, 2019 erstellt
Description:
When inflation is below its target conventional central banking practice is to decrease the nominal interest rate. The reasoning behind this practice is that reducing interest rates increases spending, heats up the economy and increases inflation. However, this conventional wisdom has recently been challenged by several prominent economists who argue that under a monetary policy rule that targets a nominal interest rate, that rate must rise in order for trend inflation to rise since it is the Fisher relation – i.e., the proportional relationship between changes in the nominal interest rate and expected or trend inflation – which governs the long-run behaviour of both variables. We show that the Neo-Fisherian claim is a theoretical possibility depending on the interplay of a set of parameters and very low levels of agents' confidence in the central bank's ability to keep inflation on target by means of conventional monetary policy. Yet we may say that this possibility is remote for most commonly found empirical values of the relevant parameters