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The Neo-Fisher Effect: Econometric Evidence from Empirical and Optimizing Models

Martín Uribe

NBER Working Paper No. 25089
Issued in September 2018
NBER Program(s):Economic Fluctuations and Growth, Monetary Economics

This paper investigates whether permanent monetary tightenings increase inflation in the short run. It estimates, using U.S. data, an empirical and a New-Keynesian model driven by transitory and permanent monetary and real shocks. Temporary increases in the nominal interest-rate lead, in accordance with conventional wisdom, to a decrease in inflation and output and an increase in real rates. The main result of the paper is that permanent increases in the nominal interest rate lead to an immediate increase in inflation and output and a decline in real rates. Permanent monetary shocks explain more than 40 percent of inflation changes.

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Document Object Identifier (DOI): 10.3386/w25089

 
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