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Monetary Policy and the Fisher Effect

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  • Söderlind, Paul

Abstract

Historical estimates of the Fisher effect and the informational content in the yield curve may not be relevant after a change in monetary policy. This paper uses a small dynamic rational expectations model with staggered price setting to study how central bank preferences (and thereby monetary policy) affect the relation between nominal interest rates, inflation expectations, and real interest rates. The benchmark parameters, including the Federal Reserve Bank’s loss function parameters, are estimated by maximum likelihood on quarterly US data. The policy experiments include stronger inflation targeting, more active monetary policy, and a change in commitment technology.

Suggested Citation

  • Söderlind, Paul, 1997. "Monetary Policy and the Fisher Effect," CEPR Discussion Papers 1610, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1610
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    1. repec:ptu:bdpart:b200301 is not listed on IDEAS
    2. Dupor, Bill, 2005. "Stabilizing non-fundamental asset price movements under discretion and limited information," Journal of Monetary Economics, Elsevier, vol. 52(4), pages 727-747, May.
    3. Jesús Clemente & María Dolores Gadea & Antonio Montañés & Marcelo Reyes, 2017. "Structural Breaks, Inflation and Interest Rates: Evidence from the G7 Countries," Econometrics, MDPI, vol. 5(1), pages 1-17, February.
    4. Paul Soderlind, 2004. "What if the Fed had been an inflation nutter?," Applied Economics, Taylor & Francis Journals, vol. 36(13), pages 1471-1473.
    5. Jesper Lindé, 2001. "Fiscal policy and interest rates in a small open economy," Finnish Economic Papers, Finnish Economic Association, vol. 14(2), pages 65-83, Autumn.
    6. Morys, Matthias, 2003. "Was the Bundesbank’s credibility undermined during the process of German reunification?," Economic History Working Papers 22355, London School of Economics and Political Science, Department of Economic History.
    7. Massa, Massimo & Locarno, Alberto, 2005. "Monetary Policy Uncertainty and the Stock Market," CEPR Discussion Papers 4828, C.E.P.R. Discussion Papers.
    8. Soderlind, Paul, 1999. "Solution and estimation of RE macromodels with optimal policy," European Economic Review, Elsevier, vol. 43(4-6), pages 813-823, April.
    9. Tibor Hlédik, 2004. "Quantifying the Second-Round Effects of Supply-Side Shocks on Inflation," Prague Economic Papers, Prague University of Economics and Business, vol. 2004(2), pages 121-141.
    10. Fahmy, Yasser A. F. & Kandil, Magda, 2003. "The Fisher effect: new evidence and implications," International Review of Economics & Finance, Elsevier, vol. 12(4), pages 451-465.
    11. H.a. Mitchell‐innes & M.j. Aziakpono & A.p. Faure, 2007. "Inflation Targeting And The Fisher Effect In South Africa: An Empirical Investigation," South African Journal of Economics, Economic Society of South Africa, vol. 75(4), pages 693-707, December.
    12. Bill Dupor, 2002. "The Natural Rate of Q," American Economic Review, American Economic Association, vol. 92(2), pages 96-101, May.
    13. Fernando Martins, 2003. "Movements in Official Interest Rates: Persistence and Gradualism," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    14. Somayeh Madadpour & Mohsen Asgari, 2019. "The puzzling relationship between stocks return and inflation: a review article," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 66(2), pages 115-145, June.
    15. Kam, Timothy, 2007. "Interest-rate smoothing in a two-sector small open economy," Journal of Macroeconomics, Elsevier, vol. 29(2), pages 283-304, June.
    16. Amusa, Kafayat & Gupta, Rangan & Karolia, Shaakira & Simo-Kengne, Beatrice D., 2013. "The long-run impact of inflation in South Africa," Journal of Policy Modeling, Elsevier, vol. 35(5), pages 798-812.

    More about this item

    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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