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

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  • Martín Uribe

Abstract

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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  • Martín Uribe, 2018. "The Neo-Fisher Effect: Econometric Evidence from Empirical and Optimizing Models," NBER Working Papers 25089, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25089
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    Cited by:

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    2. Lukmanova, Elizaveta & Rabitsch, Katrin, 2018. "New VAR evidence on monetary transmission channels: temporary interest rate versus inflation target shocks," Department of Economics Working Paper Series 274, WU Vienna University of Economics and Business.
    3. Lucio Gobbi & Ronny Mazzocchi & Roberto Tamborini, 2022. "Monetary policy, rational confidence, and Neo‐Fisherian depressions," Metroeconomica, Wiley Blackwell, vol. 73(4), pages 1179-1199, November.
    4. John H. Cochrane, 2020. "Strategic Review and Beyond: Rethinking Monetary Policy and Independence," Review, Federal Reserve Bank of St. Louis, vol. 102(2), pages 99-119, May.
    5. Yoosoon Chang & Fabio Gómez-Rodríguez & Mr. Gee Hee Hong, 2022. "The Effects of Economic Shocks on Heterogeneous Inflation Expectations," IMF Working Papers 2022/132, International Monetary Fund.
    6. Nooman Rebei & Rashid Sbia, 2021. "Transitory and permanent shocks in the global market for crude oil," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 36(7), pages 1047-1064, November.
    7. Thiago Revil T. Ferreira & Samer Shousha, 2020. "Scarcity of Safe Assets and Global Neutral Interest Rates," International Finance Discussion Papers 1293, Board of Governors of the Federal Reserve System (U.S.).
    8. Bassetto, Marco, 2019. "Forward guidance: Communication, commitment, or both?," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 69-86.
    9. Brendon, Charles & Paustian, Matthias & Yates, Tony, 2020. "Self-fulfilling recessions at the zero lower bound," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 213-232.
    10. Fabian Eser & Peter Karadi & Philip R. Lane & Laura Moretti & Chiara Osbat, 2020. "The Phillips Curve at the ECB," Manchester School, University of Manchester, vol. 88(S1), pages 50-85, September.
    11. Goyal, Ashima & Parab, Prashant, 2021. "What influences aggregate inflation expectations of households in India?," Journal of Asian Economics, Elsevier, vol. 72(C).
    12. Andrew Phiri, 2021. "Is Neo-Fisherism ‘alive’ in South Africa? A frequency domain causality approach," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 14(2), pages 142-156, May.
    13. Andrés Fernández & Stephanie Schmitt-Grohé & Martín Uribe, 2020. "Does the Commodity Super Cycle Matter?," NBER Working Papers 27589, National Bureau of Economic Research, Inc.
    14. Lutho Mbekeni & Andrew Phiri, 2019. "Can the South African Reserve Bank (SARB) protect the purchasing power of citizens? A new look at Fisher’s hypothesis," Working Papers 1906, Department of Economics, Nelson Mandela University, revised Sep 2019.
    15. John Cochrane, 2022. "A fiscal theory of monetary policy with partially repaid long-term debt," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 45, pages 1-21, July.
    16. Chattopadhyay, Siddhartha & Ghosh, Taniya, 2020. "Taylor Rule implementation of the optimal policy at the zero lower bound: Does the cost channel matter?," Economic Modelling, Elsevier, vol. 89(C), pages 351-366.
    17. Ascari, Guido & Florio, Anna & Gobbi, Alessandro, 2023. "Price level targeting under fiscal dominance," Journal of International Money and Finance, Elsevier, vol. 137(C).
    18. Lansing, Kevin J., 2021. "Endogenous forecast switching near the zero lower bound," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 153-169.
    19. Guido Ascari & Anna Florio & Alessandro Gobbi, 2020. "Monetary-fiscal interactions under price level targeting," Papers 2010.14979, arXiv.org.
    20. Stephanie Schmitt-Grohé & Martín Uribe, 2018. "Exchange Rates and Uncovered Interest Differentials: The Role of Permanent Monetary Shocks," NBER Working Papers 25380, National Bureau of Economic Research, Inc.
    21. Koeda, Junko, 2019. "Macroeconomic effects of quantitative and qualitative monetary easing measures," Journal of the Japanese and International Economies, Elsevier, vol. 52(C), pages 121-141.
    22. Bias Peter V. & Hall Joshua D., 2021. "A Test of Neo-Fisherism: 1964–2019," The B.E. Journal of Macroeconomics, De Gruyter, vol. 21(1), pages 221-251, January.
    23. Stephen Williamson, 2019. "Neo‐Fisherism and inflation control," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(3), pages 882-913, August.

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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