Inflation, Nominal Interest Rates, and the Variability of Output
AbstractThis paper examines the distribution of output around capacity when money demand is a non-linear function of the nominal interest rate such that nominal interest rates cannot become negative. When fluctuations in output result primarily from disturbances to the money market, the variance of output is shown to be an increasing function of the trend inflation rate. When they result from disturbances to the goods market, the variance of output is a decreasing function of the trend inflation rate. When both disturbances are significant, there exists, in general, a critical non-zero trend inflation rate that minimizes the variance of output.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 96/109.
Date of creation: 01 Oct 1996
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Other versions of this item:
- Chadha, Bankim & Tsiddon, Daniel, 1998. "Inflation, nominal interest rates and the variability of output," Journal of Monetary Economics, Elsevier, vol. 42(3), pages 547-573, October.
- Chadha, Bankim & Tsiddon, Daniel, 1994. "Inflation, Nominal Interest Rates and the Variability of Output," CEPR Discussion Papers 1068, C.E.P.R. Discussion Papers.
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-16 (All new papers)
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