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Inflation shocks and interest rate rules

Author

Listed:
  • Barbara Annicchiarico

    () (Department of Economics, University of Rome ‘Tor Vergata''')

  • Alessandro Piergallini

    () (Centre for Financial & Management Studies (CeFiMS), SOAS, University of London)

Abstract

Recent empirical evidence by Fair (2002, 2005) and Giordani (2003) shows that a positive inflation shock with the nominal interest rate held constant has contractionary effects. These results cannot be reconciled with the standard ‘New Synthesis' literature. This paper reconsiders the effects of inflation shocks in a simple New Keynesian framework extended to include wealth effects. It is shown that, following an inflation shock, the decline of output coupled with passive interest rate rules is not puzzling.

Suggested Citation

  • Barbara Annicchiarico & Alessandro Piergallini, 2006. "Inflation shocks and interest rate rules," Economics Bulletin, AccessEcon, vol. 5(19), pages 1-7.
  • Handle: RePEc:ebl:ecbull:eb-06e50009
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    References listed on IDEAS

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    6. Jordi Galí & J. David López-Salido, 2003. "Rule-of-Thumb Consumers and the Design of Interest Rate Rules," Working Papers 104, Barcelona Graduate School of Economics.
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    13. Jean-Pascal Benassy, 2005. "Interest Rate Rules, Price Determinacy and the Value of Money in a non Ricardian World," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(3), pages 651-667, July.
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    Cited by:

    1. Shaun K. Roache & Alexander P. Attie, 2009. "Inflation Hedging for Long-Term Investors," IMF Working Papers 09/90, International Monetary Fund.

    More about this item

    Keywords

    Inflation Shocks;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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