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

  • Marco Espinosa
  • Steven Russell

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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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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