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Nominal and Real Interest Rates during an Optimal Disinflation in New Keynesian Models Author info | Abstract | Publisher info | Download info | Related research | Statistics Marcus Hagedorn
Central bankers' conventional wisdom suggests that nominal interest rates should be raised to implement a lower inflation target. In contrast, I show that the standard New Keynesian monetary model predicts that nominal interest rates should be decreased to attain this goal. Real interest rates, however, are virtually unchanged. These results also hold in recent vintages of New Keynesian models with sticky wages, price and wage indexation and habit formation in consumption.
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Paper provided by Institute for Empirical Research in Economics - IEW in its series IEW - Working Papers with number
iewwp352.
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Date of creation: Dec 2007Date of revision:
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Keywords: Disinflation Optimal Monetary Policy Nominal and Real Interest Rates Other versions of this item:
Find related papers by JEL classification: E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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