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Can a Policy of Higher Inflation Reduce Real Interests in the Long Run?

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Author Info

  • Marco Espinosa
  • Steven Russell

Abstract

This paper describes a simple general equilibrium model in which a permanent easing of monetary policy, engineered via open market purchases, may produce a permanent decrease in the real interest rate and a permanent increase in the inflation rate. Under somewhat stronger assumptions, the nominal interest rate may also decline.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 31 (1998)
Issue (Month): 1 (February)
Pages: 92-103

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Handle: RePEc:cje:issued:v:31:y:1998:i:1:p:92-103

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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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Citations

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Cited by:
  1. Mark G. Guzman, 2006. "The impact of paying interest on reserves in the presence of government deficit financing," Economic Analysis Research Group Working Papers earg-wp2006-08, Henley Business School, Reading University.
  2. Sonali Das & Rangan Gupta & Patrick T. Kanda & Monique Reid & Christian K. Tipoy & Mulatu F. Zerihun, 2012. "Real Interest Rate Persistence in South Africa: Evidence and Implications," Working Papers 201204, University of Pretoria, Department of Economics.
  3. Bhattacharya, Joydeep & Haslag, Joseph, 1999. "Monetary Policy Arithmetic: Some Recent Contributions," Staff General Research Papers 10388, Iowa State University, Department of Economics.
  4. Marco Espinosa-Vega & Steven Russell, 2001. "Stability of steady states in a model of pleasant monetarist arithmetic," Working Paper 2001-20, Federal Reserve Bank of Atlanta.
  5. Bhattacharya, Joydeep & Haslag, Joseph & Russell, Steven, 2004. "The Role of Money in Two Alternative Models: When is the Friedman Rule Optimal, and Why?," Staff General Research Papers 11950, Iowa State University, Department of Economics.
  6. Christopher J. Neely & David E. Rapach, 2008. "Real interest rate persistence: evidence and implications," Working Papers 2008-018, Federal Reserve Bank of St. Louis.
  7. Marco A. Espinosa-Vega & Steven Russell, 1997. "History and theory of the NAIRU: a critical review," Economic Review, Federal Reserve Bank of Atlanta, issue Q 2, pages 4-25.
  8. Marco Espinosa-Vega & Steven Russell, 1998. "The long-run real effects of monetary policy: Keynesian predictions from a neoclassical model," Working Paper 98-6, Federal Reserve Bank of Atlanta.

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